I think I have a deal. Help!

20 Replies

I found about a possible deal through a real estate agent at an open house. I went to look at the property today. Its a 4/2.5 and its already a rental property. They are asking 125K for it prior to listing it, but believe that they can put it on the market for 139K. Rents in the area are about $1,500 per month but the current rent is $1,200 and the renter is being evicted. The agent told me that most deals of this type can be handled without a lawyer by using the title company. What are the risks of not using a lawyer and relying on title insurance for protection for a deal of this type?

Almost all real estate transactions in Texas are homes sold with just a title policy from a title company. I would be more concerned about getting the tenants out. Is their a written lease they have broken to evict then with?

You could make it a condition of the sale that the home is vacant before closing on it. 

how are you going to pay for the house @Willie R.

What are you planning to do with house

Give us the numbers such as maintain. Taxes,insurance,vacancy 

We will tell you if we think it is a deal

Most title companies in Texas are associated with a real estate attorney. I would feel comfortable that they have built in protection and will consult the attorney with any questions. 

Originally posted by @Larry P. :

Almost all real estate transactions in Texas are homes sold with just a title policy from a title company. I would be more concerned about getting the tenants out. Is their a written lease they have broken to evict then with?

 They stated that they have started the eviction process already. When I looked at the house it appeared that the tenants were in the process of packing. I will be sure to ask for documentation to find out what stage in the eviction process they are in. Great help. Thanks

Originally posted by @Mark Brogan :

how are you going to pay for the house @Willie R.

What are you planning to do with house

Give us the numbers such as maintain. Taxes,insurance,vacancy 

We will tell you if we think it is a deal

I will finance it through a private lender at about 4.5%. They are asking 125K. I think I can get it for closer to 100K with a cash offer. The seller seems very motivated. I plan on fixing the cosmetic problems like a few drywall repairs, painting inside and out, and a couple of broken window panes. I want to replace all of the carpeting with wood grain laminate and replace all of the appliances. I estimated 22K for all of the repairs and upgrades using the high estimates provided by Homewyse Here are the numbers:

 Taxes $3,000

Insurance $1,500 estimated

Vacancy $1,400 one month

Lawn care $600

Misc  $1,000

Comp rents for he area are about $1,495 but I am estimating $1,400 to be safe.

What do you think?

Originally posted by Account Closed:

Most title companies in Texas are associated with a real estate attorney. I would feel comfortable that they have built in protection and will consult the attorney with any questions. 

 Thanks for the info Debbie.

Account Closedfolks, and tho I have virtual wholesaled 3 houses in DFW before I'm interested to see if this still apears to be a deal or not in this situation.

Originally posted by @Willie R. :

I found about a possible deal through a real estate agent at an open house. I went to look at the property today. Its a 4/2.5 and its already a rental property. They are asking 125K for it prior to listing it, but believe that they can put it on the market for 139K. Rents in the area are about $1,500 per month but the current rent is $1,200 and the renter is being evicted. The agent told me that most deals of this type can be handled without a lawyer by using the title company. What are the risks of not using a lawyer and relying on title insurance for protection for a deal of this type?

 Willie, looks like you will barely meet the 1% rule, right? The general recommendation i have heard is to try and meet atleast 2% rule.

What area is your deal in? From what I see in DFW hitting the 2% rule on SFH's is not so easy anymore. If I am wrong about that and someone has one I would love to buy it! Here are the numbers I am seeing though on a monthly basis

Income $1400

Debt service (assuming $0 down) $618

Taxes $250

Vacancy  $117 

Lawn care $50

Misc $84 (I am not sure what misc is referring to but ill leave it on there for you.)

Cap X $114

Management $114

Maintenance $114

insurance $114

Monthly GOI = $1400

Monthly expenses= $1689

Monthly cash flow= $(289)

Feel free to adjust these numbers and repost if I missed something or was higher or lower than what you believe it would be for this particular property. 

@Willie R.

I agree with Account Closed that title companies in Texas utilize Texas lawyers. You might want to call a local title company and discuss their services and your concerns.

Are you working with a RE brokerage? That is, have you signed a buyer's representation agreement? If so, your agent has a fiduciary responsibility to help you through this process.

If you utilize a real estate agent they will suggest using TREC contract form 20-12 "One to Four Family Residential Contract (Resale)" which contains an option period. If you and the seller agree to the option period contract then you have a period of time to re-evaluate the deal. During this time you can have the home inspected by a licensed inspector (for a fee) and also get contractors to bid on the work (typically free). You can also have your agent do a comparative market analysis for the area around the subject property and also pull lease information from the MLS.

Have you used the Rental Properties Calculator here on Bigger Pockets to determine if this is a good deal?

TX Agent # 654313

Originally posted by @Lance Wakefield :

What area is your deal in? From what I see in DFW hitting the 2% rule on SFH's is not so easy anymore. If I am wrong about that and someone has one I would love to buy it! Here are the numbers I am seeing though on a monthly basis

Income $1400

Debt service (assuming $0 down) $618

Taxes $250

Vacancy  $117 

Lawn care $50

Misc $84 (I am not sure what misc is referring to but ill leave it on there for you.)

Cap X $114

Management $114

Maintenance $114

insurance $114

Monthly GOI = $1400

Monthly expenses= $1689

Monthly cash flow= $(289)

Feel free to adjust these numbers and repost if I missed something or was higher or lower than what you believe it would be for this particular property. 

 Thanks lance I forgot about management maintenance and Cap X. I knew I was missing something and just plugged Misc. in there. Here are the the revised numbers. 

Income $1400

Debt service (assuming $0 down) $623

Taxes $250

Vacancy $117

Lawn care $50

Misc 0 (I am not sure what was myself so I'm taking it out.)

Cap X $114

Management $114

Maintenance $114

insurance $114

Monthly GOI = $1400

Monthly expenses= $1496

Monthly cash flow= $(96)

Ok I'm getting close. I really believe my renovation costs are estimated on the high side but it looks like I need to get the property for less than 100K.  The realtor just text me this morning. I told them I would call back this afternoon. 

Originally posted by @Scott Beck :

@Willie R.

I agree with Account Closed that title companies in Texas utilize Texas lawyers. You might want to call a local title company and discuss their services and your concerns.

Are you working with a RE brokerage? That is, have you signed a buyer's representation agreement? If so, your agent has a fiduciary responsibility to help you through this process.

If you utilize a real estate agent they will suggest using TREC contract form 20-12 "One to Four Family Residential Contract (Resale)" which contains an option period. If you and the seller agree to the option period contract then you have a period of time to re-evaluate the deal. During this time you can have the home inspected by a licensed inspector (for a fee) and also get contractors to bid on the work (typically free). You can also have your agent do a comparative market analysis for the area around the subject property and also pull lease information from the MLS.

Have you used the Rental Properties Calculator here on Bigger Pockets to determine if this is a good deal?

 Scott I have not signed anything. I think the realtor is helping out a friend to get rid of their problem. Thanks for the advice on the contract and the title company, I will definitely keep that in mind.

As for the calculator I found an app that does basically the same thing. I don't have a pro membership yet but If I can get this deal done I will sign up. 

Does anyone have any advice on the numbers I posted?

The cash flow looks low to me.  I shoot for $300-$400 minimum cash flow .  I'm not sure what the management and maintenance fees you have factored in are.

Originally posted by @Willie R.:

I found about a possible deal through a real estate agent at an open house. I went to look at the property today. Its a 4/2.5 and its already a rental property. They are asking 125K for it prior to listing it, but believe that they can put it on the market for 139K. Rents in the area are about $1,500 per month but the current rent is $1,200 and the renter is being evicted. The agent told me that most deals of this type can be handled without a lawyer by using the title company. What are the risks of not using a lawyer and relying on title insurance for protection for a deal of this type?

 The agent and seller were not to happy about my offer last week. Now they have listed the property, evicted the tenant and called us back to take a second look at it. If I do decide to increase my offer do I need to obtain the services of a buyers agent or can I make an offer through the listing agent? Any advice is much appreciated.

Hi Willie,

I would absolutely use a buyers agent. The listing agent represents the clients and has their best interest at heart. Therefore, anything you tell the listing agent, he/she will tell the sellers. If you tell her your max, the owners know exactly what you are willing to pay and you lose your negotiating leverage.

Using a buyers agent is 100% FREE to you as the seller pays the agent's fees, so there is no harm. Where is the property located?

This post has been removed.

Willie, definitely use a buyer's agent! I can refer a great one to you. PM me if would like.

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