Dalton, GA · Member since 2020 · 21 posts · 7 votes
Hello fellow bigger pockets members, so i’ve been on the hunt for my first rental property for a few months now. I spoke with a real estate agent and he’s offered to sell me a duplex that he and a partner own for $150,000. My issue is that I’ve found out recently that the market value of the property is $76,000 according to my local county website. I feel like at 50% above market price I would be paying too much for the property. If the numbers work out for me should it matter?
Yeah sorry, what I meant is how do I know what is too much to pay for a property when there are no accurate comps to compare to?
You don't. I'm experienced at it, but if I wasn't I wouldn't buy it until I could get the required comps. I also said not to rationalize properties that don't match the criteria I've given.
The goal is to make money. The goal isn't to buy properties. That means you must buy "deals". You won't make money if you don't have, or are using faulty (or rationalized) information. Analysis is the most important job of the REI. It's how you define a deal...so don't screw it up. Do it right.
Sometimes the best deals you make, are the ones you don't make.
Hello fellow bigger pockets members, so i’ve been on the hunt for my first rental property for a few months now. I spoke with a real estate agent and he’s offered to sell me a duplex that he and a partner own for $150,000. My issue is that I’ve found out recently that the market value of the property is $76,000 according to my local county website. I feel like at 50% above market price I would be paying too much for the property. If the numbers work out for me should it matter?
County website is listing tax value, which is always lower than market value. Tax value is intentionally below market, so they reduce the risk of owners disputing tax value. For market value, you want to look at recent comparable sales. You can have a realtor do MLS searches on recent comparable sales. You can also put the numbers in a deal analyzer. As far as "if the numbers work", that all depends on how you are calculating the numbers. Are you talking rent-mortgage payment or are you actually accounting for all expenses? It makes a difference how the numbers are calculated. The fact that a realtor and his partner are ready to dump on a newbie, tells me that you should be triple check everything.
I'm a little curious about the local county website. I know you said this was market value, but are you maybe confusing this with assessed value from the county property accessor?
Maybe you're not and I'm just unclear on this, I just don't know of a county website that exists that's at a government level like this that offers value margins other than for property tax assessment purposes.
If this is the case, the assessed value and the fair market value might be vastly different. I guess it sounds like maybe the context for one value is taxes and the other is what a buyer is maybe seeing upon as an agreeable price.
If this isn't the case, it seems very odd to pay 50% over FMV for a property, even if the numbers do work out- and that means too I think that it's affordable? I say that as having the numbers work out otherwise doesn't add up either.
If other area duplexes are going for around $76K the % of monthly rental yield is going to be greatly different for you at $150K purchase by comparison- an mount to which trying to make up for in rent rates would outprice you on the high end from your competition.
If this is a seller financed deal, this makes more sense as the terms are rather the seller's own and generally the agreed upon price can be higher than usual as a benefit for the seller in agreeing to offer seller financing, but not to the tune of 50% in any case that I can think of.
This matters too as I'm not sure how you plan on financing the deal- what it appraises for in terms of your lenders POV is going to come into play. If you're using cash, this doesn't make sense to me either as I'm not sure why you would be so far above in purchase price point from FMV.
Like I said, it sounds like maybe this is assessed value for tax purposes vs Fair Market Value. I would be careful if this is the case too as (depending on your area tax rate) if this hasn't been assessed this year, FMV is 50% higher now, it's likely to have a reassessment coming soon and your property taxes could jump up proportionally.
In a nutshell, and unless I missing something (totally could be!), this doesn't make sense to me. I would at minimum find some other tools for evaluating FMV.
Dalton, GA · Member since 2020 · 21 posts · 7 votes
5y
@Joe Splitrock
Thank you For clarifying Joe I believe you are correct I confused the tax or assessment value for the fair market value, I must do my due diligence to find out what the actual FMV is. Also I did account for all expenses not just the mortgage and the fact that this realtor and his partner are eager to offload this property is a red flag, I will make sure to triple check everything.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y
1 - That's the tax value, which is usually anywhere between 30% to 60% of the actual value of the property. (See @joe splitrock above)
2 - What "numbers working out for you" are you talking about?
3 - Yes (kind of), to answer your question, but not for this property. I have paid more than "asking price", but not higher than actual PV, for properties. I'm doing it now. It's a strategy I use, where it costs me less, I get higher CF from the start, and make more money down the road when I sell (within about 5 years +/-)...than other REI that would be making offers below current property value.
Now before you ask what that strategy is, I will say it doesn't matter. It's based on very specific conditions, seller type, market, and other factors that are too involved for this format. Besides, as a REI, you should be designing your own strategies anyway...for all the same reasons why I do (listed above in the previous sentence).
Dalton, GA · Member since 2020 · 21 posts · 7 votes
5y
@Anna Laud
Hey Anna, thank you for your advice!
As you and Joe have mentioned I do believe that I made the mistake of thinking that the county site showed the FMV when in was only the assessment value for tax purposes. I will look for comps in the are to have a better understanding of what the FMV of the property actually is.
As you and Joe have mentioned I do believe that I made the mistake of thinking that the county site showed the FMV when in was only the assessment value for tax purposes. I will look for comps in the are to have a better understanding of what the FMV of the property actually is.
Make sure you look at the same size property, in a very close to area (not crossing any county, State or City lines, or any main natural boundaries (R.R. tracks, rivers, lakes, large parks, main roads, freeways, etc...). Also must be sold within the last 2 months. Don't rationalize anything that falls outside of the above criteria as valid. IF the comps don't exist, they don't exist.
Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
5y
@Andrew Bravo the County's assessed value is typically less than the actual value of the property. It can be 50%-75% of the value in my market.
Here's one question I would ask. Is he only selling this property and keeping all of his others? If so, that's a likely red flag there. In my experience investors usually don't sell their best investments.
Yeah sorry, what I meant is how do I know what is too much to pay for a property when there are no accurate comps to compare to?
You don't. I'm experienced at it, but if I wasn't I wouldn't buy it until I could get the required comps. I also said not to rationalize properties that don't match the criteria I've given.
The goal is to make money. The goal isn't to buy properties. That means you must buy "deals". You won't make money if you don't have, or are using faulty (or rationalized) information. Analysis is the most important job of the REI. It's how you define a deal...so don't screw it up. Do it right.
Sometimes the best deals you make, are the ones you don't make.
Real Estate Agent · Austin, TX · Member since 2020 · 338 posts · 296 votes
5y
@Andrew Bravo As other have said and will say, you always can pay for more than asking price and still have it be a good deal. People do that frequently - the property is listed well below market value, the buyer snatch it up over asking, and both parties see it as a win-win. You could also pay over market value, but that doesn't sound nearly as appealing to me nor probably any other investor out there. A very simple but big concern that arises is an exit strategy - what if you purchase the property over market value, and suddenly need to get out. If you try to sell that property, but nobody is willing to pay what you did (because it's over market value), then you are stuck selling it for LESS than purchased for, which is not good.
I would really hone in on your numbers and criteria, and look over this deal carefully. Also, don't be afraid to counter either! If the owner is a RE agent and an investor themselves, they understand you want to make your numbers work - it's not an insult to them, it's business
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
5y
This is, perhaps the strongest seller market I've seen. I am talking mostly about single family houses. Comparables, only a few months old, are not a good snapshot of the market. Values are going up.
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
5y
It is IMPOSSIBLE to pay over market value for anything. The fact that you paid something and the seller accepted it is the definition of market value. Now asking price is another thing all together.
Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
5y
If you're looking at comping a property, last place you want to go is the county website. Instead, look at comparable sales and see what it might be worth. Or you can also look at basing the property value off NOI, which is a separate subject.
@Andrew Bravo Hi. I’ve paid more than the going value a few times but the numbers have always worked out. Also other things have always factored in such as the location of the property, the desirability of the neighborhood or town, the proximity to shopping, schools, or other attractions. I also try to factor in the sustainability of the value of the property and it’s rents should the overall market values of the area drop.
Real Estate Agent · Phoenix, AZ · Member since 2017 · 47 posts · 34 votes
5y
@Andrew Bravo the price someone is willing to pay is the market value. Not what some county assessor or appraiser says the value is. These people are not investors and are not running numbers like an investor does. Im an agent in Phoenix. I've had about 8 low appraisals this year so far on investment deals. A couple as low as $100k. Does that make them bad deals? Nope. But the appraiser is on the hook to the lender and mortgage servicers for the value so they are cautious by nature in appreciating markets and get paid whether or not the deal happens. County assessors on the other hand might be bound by local rules. Property taxes are based on assessed value. In Phoenix assessed value can only go up by 5% a year. Our market appreciated 20% last year. You will almost always find assessed values are less than market value and they shouldn't be confused with each other.
Real Estate Agent · Memphis, TN · Member since 2019 · 76 posts · 39 votes
5y
I'm in the Memphis, Tn market and we still have investors buying deals here. It all depends on how the numbers work for you. I would be happy to chat with ya.
@Andrew Bravo As other have said and will say, you always can pay for more than asking price and still have it be a good deal. People do that frequently - the property is listed well below market value, the buyer snatch it up over asking, and both parties see it as a win-win. You could also pay over market value, but that doesn't sound nearly as appealing to me nor probably any other investor out there. A very simple but big concern that arises is an exit strategy - what if you purchase the property over market value, and suddenly need to get out. If you try to sell that property, but nobody is willing to pay what you did (because it's over market value), then you are stuck selling it for LESS than purchased for, which is not good.
I would really hone in on your numbers and criteria, and look over this deal carefully. Also, don't be afraid to counter either! If the owner is a RE agent and an investor themselves, they understand you want to make your numbers work - it's not an insult to them, it's business
Thank you Joshua for the advice and encouraging words, I will definitely make him a counter offer.