sold for 13k in '05 now asking for 20k in '15 too much?

Question

I have a property I am considering buying I believe I am going to keep it as a rental due to low operating cash but can still possibly flip.

I am looking at a 700 sq ft SFH 2/1 built in 1933. The owners and I have came to a price of 20k through owner financing with 7k down.

I am wandering if I am over paying for this property. I have checked with my real estate broker and comps in the area are selling between 40-55k.

What I am questioning is if I am paying for the property? On the tax records the property was sold for 22.5K in '04 and in '05 is was sold for 13k.

Its going to defiantly need some repairs also.

BP experienced investors do you think I am paying too much for the property? My plan was to get the house inspected and use that as a negotiating tool to satisfy a lower price because the family received the house through and death and just want to cash out quickly. Thanks in advance for your responses.

Joshua Beall · Answer

There's not enough details to say for sure, but here are a few key things to remember:

1) With residential properties, it's all about comps. You mentioned that comps in the area are selling for 40-55k. If those really are comps for your property, in its current condition, then you're getting a great deal.

You mentioned the property needs repairs. If those 40-55k comps are "after repair" comps, then you need to factor in the cost of repairs.

2) What the current owner bought it for in 2005 is largely immaterial. What matters is what it's worth today. You can use the price they bought it for as a data-point, but it's really secondary to the what data you can find in recent, comparable sales.

Hope that helps! Make sure to keep us posted on your progress!

-Josh

Joel Owens · Answer

"built in 1933"

Probably needs a lot of work.

Just do not expect this property to appreciate much over the years. You are buying into an older lower income type house to work for cash flow yield.

Skylar Dejesus · Answer

Thank you guys for your responses they are very insightful. I think I am going to get the property I have devised several different exit strategies it currently has a renter paying 500/month I think the plan is to rent the property to her as long as she wants it for then when she decides to move I will then decide if I want to repair and flip and continue renting for an increased rent.

Alexander Felice · Answer

@Joshua Beall is exactly right

Find out what the ARV is, find out repair costs, analyze profit, make a decision. If the house is worth 45k as is, and you're getting it for 20k then pick and exit strategy and make a move.

as for the previous amount the house sold for, it was 10 years ago. It's about as close to useless information as you can find. Also, you can't be mad at a guy for making a (measly) profit, those are the rules we will by.

Skylar Dejesus · Answer

@Jay Hinrichs

I'd say the rent is a little below market rent, but there are some small cosmetic repairs that could increase rent to $600-700/month. SF comps in the area around same sq footage are renting $600-800. The payment to the owner would be 13k amortized over 10 years with a 4% interest rate. Insurance will be 647.36 and taxes are 548.32. I had been considering another duplex to make this property #2 for me but I was running the numbers and the house is making exactly half of the duplex for the half the down payment. Although I would like to stay in MF this SF looks like it could increase my cashflow and add another property to my portfolio. I would like to reach at least 10 in the next years I defiantly feel its do able.

Gilbert Dominguez · Answer

Take more time to evaluate what you will put into the property and what you will earn. What will it cost you to pay the owner plus maintenance, insurance and repairs? What will be your part of any escrow fees? You have to account for every dollar that comes out of your pocket. Ask yourself if you have a way of saving money for when you will move forward with your plan to get it ready for higher rents. Base is on today's rents because you will not know what tomorrow's rents will be although we all do in the back of our mind. The point being is that you have to look at things as is not speculate about tomorrow.

Jay Hinrichs · Answer

how much is your payment on the land contract to the owner.. whats the interest rate?

is this market rent or below

would need these details to see if this is the best use of 7k and your time.

sold for 13k in '05 now asking for 20k in '15 too much?

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