College kid stumbled across a deal! How should I proceed?

Question

I am currently in college and looking to buy a duplex after I graduate, so I was just looking through Zillow and analyzing deals for practice when I came across a deal that seems very undervalued. This house is listed at $65,000 and the rest in the neighborhood are upwards of $140,000. My first thought goes to "what is wrong with it" because this deal seems too good to be true to come straight off the MLS. The images show a hospital bed and a wheelchair in them so I wonder if the resident had to move to an assisted living facility and now the family is trying to sell the house. It seems like it would just need some paint (the walls are currently painted yellow, purple, and green!) and not much more work than that.

I don't think I would be able to qualify for a loan, so I'm not sure how to proceed. Should I try to wholesale this to another investor? Or try to gather up money from friends and family to purchase, paint, then sell? Also, what are some things I need to watch out for when approaching a deal like this? Any input and advice would be greatly appreciated!

Josh Feyen · Answer

It's a common saying that if a deal seems to good to be true it probably is. That said, you may need to dig a little deeper and gather more information before knowing if this is a cosmetic flip or if there's more to it. Is there something about the area that could reduce value? A cloud on title? How's the roof, siding, foundation, wiring? Is it insulated, have windows been updated? There's a lot to it so if you don't know construction you'll need someone who does to go along with you. Once you know that you put some numbers together and see if it really makes sense.

As for financing there are myriad ways to put the money together if you want to proceed. Listen to BP Podcast 92 where Brandon goes through No (and Low) Money Down Real Estate Investing. There's a ton of guides here to help you get started and the question you're asking might be better answered by diving into them.

Also be aware that it's a common tactic in real estate to put "estate" properties up for sale at a low price to garner clean offers with no finance or inspection contingencies and a quick close.

Josh Feyen · Answer

Just to clarify I think Joel was looking for duplexes and found a SF house with flip potential. Next step would be putting your team together which would be agent, finance, contractors, etc. It can be a lot when getting started so begin with an agent who understands investments and what you would like to do. They can connect you with the rest. Honestly most agents and the listing agent will want to know where the money is coming from before considering an offer. In our market offers must be accompanied by a prequal letter from a lender at minimum and/or proof of funds. Other investors here might be able to better answer how to get it under contract to go the wholesale route, but it might be more of a challenge with a property in the MLS vs. an off market property.

Lynnette E. · Answer

Go look at it and ask if there are disclosures. Some states give you the disclosures before you make an offer, some after. The disclosures may tell you what is wrong. Also, if an estate is selling the property they may not have to do a disclosure.

My guess is that there are major issues, original outdated wiring, foundation issues, no HVAC, needs a new roof, major plumbing lines need to be replaced, gas leak under a slab, asbestos siding, not enough electrical amps/outlets to power a modern house, a foreclosure, past drug manufacturing house, next door to a registered violent sex offender, no parking or on a major busy noisy street, next to commercial or industrial property?

Joel Unick · Answer

@LeAnn Riley Thank you for the advice! I agree that having the right team in place, especially having an agent who works with investors, is going to be vital to my success.

LeAnn Riley · Answer

I second what @Josh Feyen is saying. It's all about the team and you need to start with an agent who understands investment property and fix and flip, etc. Maybe you have friends or family you could enroll in the money part if you don't qualify at this time. Best to figure out how to get the money before an agent will want to spend time showing any property.

I do love properties that are on the MLS but something looks a little off. Just closed today for a client on a duplex that was WAY over priced and had bad photos. I took an investor there and wow...the baths and kitchens had all been remodeled. It was great. We still had to battle to get the price down. Even in today's market we got it for $49,000 below the list price. AND there was no bidding war as no one was looking at the property.

You have a good eye if you can spot a deal. And, maybe the hospital bed in the photo is a good sign. BUT, you need to "have your ducks in a row" and be ready to evaluate the deal, finance the deal and move quickly in this market.

Forrest Faulconer · Answer

Go see it, if it has been on Zillow for some time, that means it has been picked over by everyone and something is deterring people from purchasing it. Otherwise, a duplex would be a great house hack opportunity for a college student!

Forrest Faulconer

Joel Unick · Answer

@Josh Feyen Thank you for your insight! I am definitely worried that there is some hidden deal killer. As I've heard on the podcast numerous times, my thinking was just to get it under contract then have enough contingencies that I could back out if I run into anything, but I hadn't thought about it being an estate sale and not having the option to write in those contingencies.

So I guess my next question is would it be a good idea to try to find an agent and get it under contract (if I can have safety contigencies) and what are some potential concerns about this?

Joel Unick · Answer

Sorry, to clarify, all the houses in the neighborhood including the one I'm looking at are single-family homes. The one I am looking at is a 3/1, and on the same block, there have been two 2/1s sold for $150,00 and a 3/1 sold for $170,000. All of the square footage seems to be similar. When looking at the county assessors site, this property's tax assessment is around $100,000, and the average of all the comparable sales I pulled from the assessor's website is around $150,000.

Jeff Krasowski · Answer

@Joel Unick, my question is if the other houses mentioned are really comparable to this property. I have yet to do a deal myself, but it sounds like a good opportunity to me. Best of luck!

Joe Villeneuve · Answer

When you say "..rest in neighborhood are upwards of $140k...", are the "rest of the neighborhood houses" all duplexes too?

College kid stumbled across a deal! How should I proceed?

College kid stumbled across a deal! How should I proceed?

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