3 townhomes, 1st time help!

10 Replies

Hey I'm in South Central PA and am a new REI. I am working with my partner and we are looking to get our first deal. I'm working with a local agent who is awesome! I happened to be driving on a street near my house and it had a phone number, I called.

I ended up meeting a rental giant in the area- for one reason or the other, his property management(and he owns also) is selling some properties to downsize.

Long story short, I didn't like the house he showed me but he had a giant list of places- the list included the rental income, taxes and insurance they paid along with an appraised value that happened within the last 6 months. 

There are 3 townhomes right next to each other( Two are 2 bed 1 bath, 1 is 3 bed 1 bath), and listed as 110k, 110k, and 115k, respectively.

I can afford(my partner and I have around 62k cash for down payments and any renos) to pay for 1 place, maybe the 115k. 23k down payment plus 5kish closing. We want to leave ourselves some cash for renovations or immediately necessary repairs upon purchase.

I'd like to offer a proposal that we buy the 1 and do owner financing for the other two. 

I had said to the PM that I'd love to have those 3 houses but I cannot afford it- he said "Well make me an offer, the #s on the list we are not married to." I take this as a bit of encouragement. We are meeting tomorrow for coffee so I can pick him and his wife's brain- they are happy to help new investors. 

Can I get some feedback as to how to proceed??

Hello Spring!  How did you make out with this? Does sound like a seller financing opportunity.  What location are these properties?  Any questions you may have feel free to let me know.  I'm happy to help.  I'm up the road about an hour away in Harrisburg, PA.  

Hey Spring! I like to work my numbers backwards from the income. If a place is bringing in 1000$ a month, I want to pay 50k for it. I'm usually covered for insurance, taxes, expenses, reserves, etc. I've been successful on the MLS in Chambersburg, waynesboro, Harrisburg, and York so far…


please let me know how it goes and if you’re inclined to make an introduction, I may be able to take a few more of your sellers properties off his hands;)

Originally posted by @Travis Wylie :

Hello Spring!  How did you make out with this? Does sound like a seller financing opportunity.  What location are these properties?  Any questions you may have feel free to let me know.  I'm happy to help.  I'm up the road about an hour away in Harrisburg, PA.  

Hi Travis!

Well I ended up not making an offer. The math didn't add up as I wasn't aware at first that there is a 135$ water sewer utility that the owner had paid. The rent in the area doesn’t support the total costs(mort, tax, insurance, vac capx mx and so forth). The properties are in south west chambersburg.

My partner and I are still on the hunt though and are looking more for a multifamily along 81, from Harrisburg to Hagerstown MD.

Perhaps we could meet up sometime, if the opportunity allows itself! Im always looking to connect with local RE professionals! There is so much to learn!


Spring

Originally posted by @Zachary Coombs :

Hey Spring! I like to work my numbers backwards from the income. If a place is bringing in 1000$ a month, I want to pay 50k for it. I'm usually covered for insurance, taxes, expenses, reserves, etc. I've been successful on the MLS in Chambersburg, waynesboro, Harrisburg, and York so far…


please let me know how it goes and if you’re inclined to make an introduction, I may be able to take a few more of your sellers properties off his hands;)


Hey Zachary!

I unfortunately didn’t make an offer, the rents in the area wouldn’t support the cash requirements to make it a good deal. Really, at my beginning stages I couldn’t put enough down(not more than 20%) to make the deal cash flow. I don’t want to rush into a bad deal so I will keep searching.


You said that if the rent is 1000 then you offer 50k, that would usually cover all the mx, vacancies and capx on top of the mortgage insurance and taxes. How are you finding deals like this!!?

If you see a place that is 1000 per month rent, do you offer 50k cash? If i were mortgaging it would it be 50k after my downpayment? Like, the offer would be 62.5 and w 20% down is 50?

Originally posted by @Spring Freerksen :
Originally posted by @Zachary Coombs:

Hey Spring! I like to work my numbers backwards from the income. If a place is bringing in 1000$ a month, I want to pay 50k for it. I'm usually covered for insurance, taxes, expenses, reserves, etc. I've been successful on the MLS in Chambersburg, waynesboro, Harrisburg, and York so far…


please let me know how it goes and if you’re inclined to make an introduction, I may be able to take a few more of your sellers properties off his hands;)


Hey Zachary!

I unfortunately didn’t make an offer, the rents in the area wouldn’t support the cash requirements to make it a good deal. Really, at my beginning stages I couldn’t put enough down(not more than 20%) to make the deal cash flow. I don’t want to rush into a bad deal so I will keep searching.


You said that if the rent is 1000 then you offer 50k, that would usually cover all the mx, vacancies and capx on top of the mortgage insurance and taxes. How are you finding deals like this!!?

If you see a place that is 1000 per month rent, do you offer 50k cash? If i were mortgaging it would it be 50k after my downpayment? Like, the offer would be 62.5 and w 20% down is 50?

Gross rental income is 2% of purchase price. I made probably 50-100 offers to get the 11 properties I now have. All from the MLS.

Hello @Spring Freerksen !  I'd be happy to meet up.  I have a friend and fellow Biggerpockets member that runs a small local meetup where we meet at local breweries near Harrsiburg area and talk real estate for a few hours.  If you have an interest in joining up or checkout 'Meetup' app and search real estate for some of the local meetups.  There are some good ones in the Harrisburg area.  I will attend them on occasion so perhaps I'll see you at one of those as well.  Feel free to reach out to me and let me know what you're looking for and I'll do what I can to send some properties your way that may meet your criteria.  

@Spring Freerksen was there a number that would have made sense that you could have offered?  As @Zachary Coombs is emphasizing, it's going to take many offers, often times, to get a deal that makes sense.  In this market that can become challenging at times.  

Originally posted by @Travis Wylie :

@Spring Freerksen was there a number that would have made sense that you could have offered?  As @Zachary Coombs is emphasizing, it's going to take many offers, often times, to get a deal that makes sense.  In this market that can become challenging at times.  

Travis,

Indeed there is a number to offer. I can list my details below so you see the breakdown.

Mortgage details- 30 yrs 4.5% and 20% down

Offer 75k(3 bedroom 1 bath, 1000 sq ft, 1 car garage, 3 stories) 

Mortgage- 304

Taxes + water/sewer- 278

Maintenance (10% of rent)- 80

CapX(5% of rent)- 40

Vacancy(5%) - 40

Insurance - 40

Total- 756

Rent-800

Monthly profit-44

Cash on cash return- 2.84%

As you can see, the return is a bit low, especially since the rents there cannot be raised much higher. Maybe 50 to 100 dollars but that is pushing it. Obviously offering 65k would be a better return, 7.2% but I am not sure this is the right first place for me. Not only that, the 2 other townhomes in the row are only 2 bedrooms.

what do you think?


Looks like a pretty good breakdown.  Is rent really only $800 for a 3 bed in chambersburg?  I did a quick search and for a 3 bed place you should be able to get at least $1k.  Is there something about the property that warrants a lower rent?