should I walk away from this deal?

Question

I recently offered and got a property under contract. It is a single house divided into 2 units. The listing price was 225K however The seller is currently out of town and agreed to sale it for 217K. After thorough professional inspection, there are a lot of minor issues which may cost me up to 8500$ to fix it.  The seller offers me just 1500$ credit. The house is renting for 2450$ per month. It is an old wood house and was built in 1929. Should I accept this offer or walk away from this deal?

Joe Villeneuve · Answer

@Por Ataxic

Question:  Should you walk away from this deal?

Answer:  No....RUN.

There's no equity, no cash flow...why are you thinking of buying it?

Real Estate Investing is a game of numbers.  The numbers are how you keep score of how you are doing.  The number of properties you acquire is not the number that you use to keep score.  The numbers with a $$$$$ in front are...and it better not have a "-" in front of that...for any deal, at any time.

Joe VilleneuveREcapSystemA2REIC

Joe Villeneuve · Answer

@Por Ataxic Cash flow?

2450    Rent1200    PI (80% cost of loan)  245    Maint/vac  245    Prop. Mngmt  960    GCF  650    Tax/Ins (est)$310     Cash Flow/month$3720   CF/Year

$44,000   Cash still in (20% down)8.5% CCR11 years to recover cash

...and it's an old house just waiting for things to fall apart.

Joe VilleneuveREcapSystemA2REIC

Joe Villeneuve · Answer

@Engelo Rumora You nailed it.  The numbers don't lie.  The tenants are the riders.  You don't want to get a bad tenant, but what's worse is getting a bad deal.

A far as saying it's a good tenant in a good property.  See above.

As far the "great location".  Is this the only property in this location?  The only things that makes a good property is  good deal.  This is not.

JV

Andrew Syrios · Answer

The rent/cost is only about 1%, so it's not going to cash flow well if at all. It's also an older home, which can definitely present problems (put a contigency into your rehab budget for sure). The big question is what is the ARV and what is your exit strategy. Unless your plan is to flip the ARV is around $300,000, I would walk.

Engelo Rumora · Answer

Thank for your comment Por,

You don't buy tenants. You buy a property and the numbers in the deal.

Those numbers should get you a step closer to your end goal.

There are plenty of deals out there.

Just be patient and the right one will come along.

Thanks and have a great day.

Por Ataxic · Answer

@Engelo Rumora

I am interested in this property because it's in a great location and tenants are decent.

The deal that you described seems surreal to me. I'm afraid of dealing with bad tenants.

Joe Villeneuve · Answer

So what.  Do you play poker?  Do you "know when to fold 'em, know when to hold 'em, know when to walk away, and know when to run"?

Joe VilleneuveREcapSystemA2REIC

Engelo Rumora · Answer

Hi Por

I agree with Joe.

There are so many better deals out there. Here is an example.

Just bought a 4 bed, 2 bath home in Ohio for $35,000. Needs $15,000 in renovations and will rent for $1,200pm.

Around 20% cap.

Walk out the door price is $80,000 - $85,000.

Look into the Midwest. Some great deals here.

Also, feel free to check out a blog I wrote for BP about what something similar Joe mentioned above.

http://www.biggerpockets.com/renewsblog/2014/06/21/predictions-futile-invest-real-estate-based-numbers-alone/

Thanks and have a great day.

Por Ataxic · Answer

@Joe Villeneuve financing for 173,600

I have paid 1100$ already for inspection and appraisal fee

Joe Villeneuve · Answer

@Por Ataxic Based on your numbers.  How much are you financing and how much cash do you still have in the deal.

should I walk away from this deal?

Most Popular Reply