First Potential Deal Analysis

13 Replies

Been trying to learn more about real estate and get some practice analyzing deals. Recently found this piece of property selling at $31 per Sq foot. Its at $69k for the property, other homes in the area are going for 100k+ and 50+ per square foot.

Based on some monthly payment calculators (using 3.34% as interest rate) its coming out to $537 at 15-yr fixed. Or $389 at 30-yr fixed.

Comparing another property in the same neighborhood (literally same street), and the same number of beds, with less sq feet in the house, it is going for 110K (see link)

According to rentometer.com, rent in the SC area goes for about 1095 median, within a 2 mile radius.

I have also contacted two local realtors to get their estimates on rent/tenant vacancy/quality of the neighborhood/likelihood of appreciation.

Link to the potential deal:

https://www.realtor.com/realestateandhomes-detail/117-Gilman-Ter_Sioux-City_IA_51104_M70768-05388

Comparision house:

https://www.realtor.com/realestateandhomes-detail/111-Gilman-Ter_Sioux-City_IA_51104_M82306-07607

renotmeter.com stats on the area:

https://www.rentometer.com/analysis/4-bed/gilman-ter-sioux-city-iowa-51104/V9i93dQNx2g


What are your thoughts? 

Jose - I'm in the same position you are. I'm starting out by strictly analyzing deals. Thank you for the post. Following along... 

Really feel like this is a great deal, and after talking to a real estate agent in this area, they said that the tenant vacancy rate in this area is 5%. So based on the information I feel like this might be a great deal, but I'm hesitant to take advantage of it. Because I would need financing, and I also don't have a stable job quite yet. (still in the last year of school).

@Jose Leon III . Congrats on getting started. 

Thought I'd share a few questions for your further consideration. I'm assuming your 30 year interest rate would be a bit hire, but I'm sure you'll adjust accordingly. didn't notice any information on the subject property specifics / condition: i.e. Roof, Foundation, etc...?  Do comps provided have updated kitchens, bath, flooring, etc...?

Couple pieces of advice - I suggest you also factor in holding cost, property maintenance, property management, insurance, vacancy, etc.. as well as taxes. Here in Grand Rapids, MI, actually Michigan in general... the property taxes are the biggest error most potential B&H owners make. I often see calculations done using the "homestead" tax rate, vs non-homestead, which can be 1.5-2X the normal rate. Grand Rapids has an extremely low vacancy rate, one of the lowest in the country in fact, so rates are going; however, so is the cost of each subject property. Feel free to send me a spreadsheet with your numbers, and I'll do what I can to provide some feedback. 

Exciting times... looks like you're moving forward. Jacques 

@Jacques Cyr I recently had an internship in Michigan, beautiful state! Spent a lot of time in the Rochester Hills, and Cadillac areas.

Ok, thank you for your great advice. I have since taken the time to learn a bit more about the property taxes, and from what I can find the Woodbury County area of Iowa charges 1.667% of market value yearly. Coming out to $96 a month. I wasn't able to find anything that related to non-homestead property tax. 

Got in contact with a home inspector, who gave an estimate of $325 of a home inspection. Does this seem reasonable in your experience?

In my area the property managers are wanting 8-10% of the rent. Seems like a lot to me, but given that this is a single family home I understand that they want it to be worth their time.

I'll send you a PM so I can share the current spread sheet with you. Once again thank you for your time, and insights.

Im always a bit leary when there is 1 picture for the listing when the comp has 20. Also... repairs on a 2200 sq ft yr 1910 house can add up super fast depending on what it needs it could eat up the 30k difference in a few jobs.  Roof alone could be 10-15k

760-902-5542

Hi @Christopher Derr ,

Thank you for the property taxes. That number is much closer to what realtor.com was giving me. How did you find your tax number?

The Beacon site, is great. A lot more information there. Will be using it in the future for sure.

Agreed, I also fear the condition of the home. 1 picture is not a good sign. I have reached out to home inspector who will do a complete home inspection for $325. Before going forward I want to spend some more time just looking at other opportunities. 

The tax amount is in the second link.  

760-902-5542

Hey @Jose Leon III , and congrats on getting started!

I'm also from Iowa and invest in the Cedar Rapids/Iowa City areas, and I think you should continue looking into this deal! $325 for an inspection does seem reasonable, and after you've done a little bit of legwork to find a lender that will lend to you, I think $325 is well worth the education you'll get from the inspector. And it might result in a good deal! 

Alternatively, if you want to be a little bit more aggressive and perhaps get some free information, you could use the Beacon website that @Christopher Derr linked to, find the deed holder's name (or even the previous seller!), and Google her. I've already done this and her phone number is readily available. Give her a call, ask her why she's selling and what repairs she thinks the house might need. You could even do this before paying the inspector $325 in case she mentions something major that you'd rather not deal with.

To give yourself a bit more margin on the deal, is it possible that you could manage the property yourself? If so, you could save the 8-10% every month and learn even more about the business. One single-family home shouldn't be terribly hard to manage, provided you live close enough to the property to go there occasionally and can place decent tenants.

And I agree with Christopher to be hesitant about properties with only 1 picture, but I would personally take a slightly different perspective on this. The house down the street with 20 pictures was built in 1917, only 7 years older than the one you were looking at. If the inspector finds out a foundation issue, or a roof that needs 10k worth of work, THEN you can punch in those numbers and decide if it's still a good deal. 

Just my two cents, but I love seeing other people's deals and thought processes! Good luck and keep sharing the process with us!

Regards,

Doug

I agree with @Doug Karkow could be something there and after some more investigation/sleuthing could be worth it. Personally I'd make an offer prior to the home inspection but make sure to include a home inspection contingency. You can then renegotiate after the home inspection if something is found but at least in the meantime you have it under contract.

@Doug Karkow That is a phenomenal idea to call the deed holder's name I plan to give her a call today. Regarding managing the property myself. I live close enough that I think I could, but it would be a learning curve on my part on placing tenants. Do you have experience with placing tenants yourself, or any sites that you use to find good renters? Considering this is my first deal, who would I go to in order to actually close the deal/the legal paperwork of signing the deed over? Is it a realtor, banker, or can it be done without a middleman?

@Jay Kadlec If I were to do the home inspection contingency, I assume that cost still falls on my part of the contract is that correct?

Thank you both for your insights!

Anything and everything is negotiable but yes typically the cost of home inspection will still fall on you. A $300-$350 home inspection is money well spent however and I would get one every time I'm seriously considering a house and have it under contract with contingency. 
Sometimes by the way the owner will actually have a home inspection report to give you. Look at the info but still get your own.

Btw if you plan to self manage I highly recommend reading Landlording on Auto Pilot by Mike Butler. 

Keep in mind I am newer at this but have been researching/reading like mad. So far have purchased one house and currently doing a self remodel (full first floor gut). I purchased it with the home inspection contingency I talked about and it worked well for me. They had their own done beforehand and supplied me the info but I was advised to still get my own and glad I did. Found a few things and was able to negotiate them down further. Being in my remodel now I wish I asked more off but there hasn't been any groundbreakingly bad things. Just extra work I didn't plan on. With my next house I know what to look for myself but will still hire a third party inspector. Was money well spent and gave me an extra opportunity to negotiate, inspection paid for itself many times over.

@Jose Leon III Becoming a landlord for the first time will always put you on a learning curve, there's no way around it. But that's how you learn, right? Better now, early in your investing career than to never know how to do it! I do have plenty of experience placing tenants myself, and I simply market on Craigslist and Zillow. I do my tenant applications (free), background/credit checks ($40, the applicant pays), and eventual rent collection (free if tenant links their bank account) through Cozy. You don't need anything besides those three websites to get started placing tenants. Just set your criteria (credit score, gross income, pets/no pets, smoking/no smoking, etc.) and compare applicants side-by-side to find the best one.

For your first deal, I would rely on the professionals! Again, realtors and lenders are free for you as the buyer, and they'll handle all the closing arrangements (title work, etc.). They can also be an excellent source for second opinions if you don't trust your own assessment yet. 

I also agree with @Jay Kadlec - the home inspection is well worth the cost. Whether you hire an inspector before or after getting under contract is up to you, but you're never going to get a better assessment of a property than from a home inspector. They'll always find things to fix (big or small), and it'll be up to you to decide if they're large enough issues to renegotiate price/terms with the seller. Either way, the inspector will have built your rehab list for you and if you get the property then you won't have any surprises. That rehab list and the peace of mind is well worth $325.

Keep digging!!

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