Hey Guys, as you may know I am now into real estate and did my first deal and now trying to da a second. I try to buy houses on the low-end prices but In goox shape and in rentable conditions. I saw a nice one in Pennsylvania for $30,000 and I made a cash offer for $19000. The agent counter offeredat 27. I said 21, the agent counter offered at 25 and never shifted since. I made an offer for 22 and they never bulge.
The house is nice colonial brick and has an apprecation for 5 - 8k for over the year. The average prices for houses in a one mile radius is about 55k. Also, the house can be rented for cool 650.
I, also, have another option of 27000k, asking-price and that SFR js in better shape; with updated bathroom, redone polish floors, HWT, and a few more other stuff done.
I need some help in deciding which one and the price to be paid.
Are these properties you are buying based in a decent neighborhood? If you're planning to hold them for a long time the quality of the neighborhood is very important too.
@Leonyang makes a very good point. Also, how much rent can you get for the 2nd option?
Maybe the most difficult thing to figure out in RE investing is walking away from a deal that you've poured hours into. If the deal doesn't work, walk away.
You need to determine a max you'll pay for the property. DO NOT GO ABOVE THAT NUMBER. If you want to make 12% on your money, 9% is not acceptable, nor is 11.8%. You always want to purchase for the lowest amount you possibly can, but never go above your max.
For this deal specifically:
If you can still make your numbers at 27k, buy the place. If that number is 22k, tell the seller/agent that 22k is your best and final offer. If they say "no," check back in with them 30 days from now and see if it is still on the market. Persistence can pay huge dividends.
Hey Guys, thanks for your input.
Here's a little more information: the neighborhood is not riddled with crime. It is very decent. The only problem they had was that the old steel mill went out a business, but the communities rebounded with gradual small imputus from the the retail and construction sectors. I could say that the real estate prices already bottom-out. The house prices are as low as it can be and you would not get back the same prices for those houses in a long time to come again. I paid 32,800 for my first investment and it already appreciated 3k in 5 months. So the neighborhood seems okay.
The only problem is with my new offer is that the property which we negotiated for 25k, the owner didn't do any major work on the property since 1992. What they did was only maintenance and at present, the house can be rented for 650, and following the 2% rule I will be okay for now. However, the reason for me wanted to pay 22k is because I understood some work needed to be done and they dont want to yield. I would say based on negotiation techniques, thd house really is 25k but they started out with 30k and reached to the figure they desired. But I say 22k with my advantage of paying cash is a good deal. My first home is a 100% better than that with mostly new fixtures and replacement, and it about 7 houses away from the one I want to aquire. I showed rhem the comparison and they still didn't yield. I feel like crying...to be honest. I will stick out a little bit and see what happen cause there are other houses in better conditions, just for a liitle more and no one is buying so my hope is that buyers will not see what I am seeing and pass on it.
The second property is in a 100% better shape, with new fixtures and replacements and so on. Also, it could be rented for 650 least. I could negotiate for 23k or 24k. But the reason why I like the first property is because of location.
So both properties fit in the 2% rule. Thank god for now. But the prices from these stubborn people...
It really comes down to cash flow, profit margin and time. Create a simple spreadsheet and compare them side by side. Include any renovation or cost of repairs, market rent, vacancy, utilities, mortgage, down payment etc. Then look at the bottom line - your net income at the end of every month - if it is a buy and hold.
If you intend to flip it, factor in AVR, holding costs, days on market and closing costs.
Whichever one makes you more money is the one to move on.
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