Just put an offer in....

7 Replies

I put an offer in on a 1934 bungalow style home.  I'm going to live in it for a year while I'm remodeling.  They are asking about 116k.  The comps are selling at 125k same condition.  I offered 105k.  The market here is exploding.  I'm speculating when I say this, but this area will more then likely be out of my price point real soon.  I'm buying this home to hold it long term.  If and when they come back demanding full price, what is my move?  It's unfortunately in a perfect location, so turning it down would hurt.  Help?!

You have to figure out the max you are willing to pay and stick to that.  If that means you do not get the property, move on to the next deal.

I hear ya...can't go against the criteria.

Not giving advice one way or the other, but to my knowledge--based on my experiences--be careful about this model; someone else please correct me if I'm wrong.  Remember, if this is your primary residence, all those things that you're repairing are no long tax deductible.  For example, if you repair the HVAC during your occupancy, you will not receive a tax deduction for it at the end of year as it is not a business expense.  I could be wrong, but again, this is based off of my limited knowledge and experience.  I did the same thing you're doing now and am now reevaluating my property acquisition model...as for what to do in this situation for the acquisition, what do the numbers say?  What are your repair costs+acquisition costs+holding costs?   Do you have access to the capital for the repairs or is the bank willing to give you a money out loan to cover expenses?  Take your final numbers--annual property taxes (at non-owner occupant rate)+all annual loan costs+annual insurance costs.  How much will you be able to rent the property out for?  You need to be clearing more rent than your costs with a little extra to cover vacancies and repairs (plan on losing about 1 month's rent for this), so monthly rent x 11.  What kind of cushion do you have there for profit (and remember this is PRETAX profit that you will be taxed on)?  More importantly, how much of a cushion do you require to be comfortable with the deal?

-Kyle Kyzer

Kyle, first off thanks for all that.  That answer sums up what has been circling through my brain.  I thought about rent and did my homework on that, it will cover my expenses when I decide to do that.  My biggest problem is that I am depleting savings to get into it.  I have another property nearby which is a duplex.  I am living in half of it and the other side is leased.  I have a new tenant moving in my side May 1st.  So I will be making this new purchase my home, while doing some repairs.  I am a remodel junkie so I can do everything on the cheap.  Looking for a little sweat equity I guess.  But I am going in with 20% down.  I had to search to find a lender that would count my rent money as income.  It's been a battle.

Everything you repair on a rental is not tax deductible upfront you would have to depreciate it. There are some things as a homeowner you can take advantage of that investors cannot. In our state a good percentage of energy improvements are not for investors so leverage those rebates.  You can also consider these repair items as part of the basis if you sell the home down the road. 

The question is though with either buy and hold or selling down road what is it worth to you. May 1 you will need to find a place to live so what is that going to cost.  Is the commute more or less then another house. Basically what is your personal use worth to you and what are you going to throw into the equation for that. It can be zero or some other number but decide what it is and stick to it.  Figure  the highest number that makes sense for you and only go up to that number.

Sorry, I lost this post so I haven't responded to this point. If you're still looking for financing, small banks are your best friend when looking to count rental income. Buying at 105 for a property that is worth 120 would still kinda scare me. I just closed on a house that will appraise for 120-125 and was able to pick it up for 76,500, plus about 4k in repairs. I know you're getting close to your move out date, but have you been looking at foreclosures (particuly homepath, homestep, and va--vrmco.com I think)? I've gotten two properties through them because I was an owner occupant and was able to bid before cash investors. My market is probably difference then yours, but with bother properties, I paid about 50% of the after repair value, which gave me a lot of equity going into it. If you could do a hard money loan or have access to someone personally who would loan you money at a better rate (they may have an open HELOC that's not being used or something like that), you could buy the house cash, do repairs, then get a mortgage later, which would cover all short term financing costs and repairs. Just a thought...

@James Mandel Jr.   do not let yourself get caught up in the "if I don't buy now I will never be able to purchase it".  The market no matter how hot will at some point slow down or drop .  Sometimes it drops a lot.  The Santa Rosa area was very much like this in 2005 with the morning paper blaring almost daily "Buy now or be priced out of the market forever".  My daughter purchased a home in 2010 for less than 60% of what the same home sold for in 2005.  Now it is above the 2005 value so what does that say about being priced out of the market after 2005.  He patience saved her a nice lump of cash.

I can already hear some BPr's saying "this time is different. That is BS.  I grew up in a family of developers and contractors so have been very aware of values since the early 60's.  The market goes up the market goes down and it will continue to do so.  Someone yesterday posted they were purchasing their 4th and 5th home in the last couple of months.  The costs they quoted were the same as the homes were selling for in the KCMO area as when I left the area 40 years ago.  So what does that say about appreciation in that area--that it only goes up?  I don't think so.  

Bend is a beautiful place but even Bend can go down in value.  Be patient find the right deal for you.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here