First post here. I'm new to REI. Goal is to make passive income through buy and hold.
Deal Background (skip ahead to numbers if not interested):
I got excited about real estate and read a few books and listened to the BP podcasts. I live in the Seattle area, so I soon realized that it's far from ideal for monthly cash flow. I decided my best bet was to look outside of my area or find something off-market to avoid heavy bidding/comp. I preferred to stay local because I really wanted something that I could manage hands-on for my first project.
I started talking to everyone I knew talking about investing and their experiences. I found a few people in my network who were looking to sell houses off the market. Interestingly enough, my landlords decided last week to move to Hawaii and they offered to sell their house below market value on a few conditions (they wanted to sell to someone they knew/trusted). We agreed to move forward today.
Price on Zillow: $570k (3b 1ba). They think it will be higher after actual appraisal
Actual config: 5b 3ba (they turned a big garage into two additional rooms + bthrm)
Rental Income: Rooms are rented separately as room share. They get ~$2500 total, ~$2000 not including my room.. I already knew, but they admitted that they are not renting for market value. If I raise rent to market value I can get ~$3000 or more.
House is furnished and I can rent as furnished
Zip Code: 98007 (Bellevue)
Location: great location. on bus line. quiet neighborhood. near a park. walking distance to a college. high rental demand.
This seems like a great fit for my strategy since I can get cashflow on day 1 or house hack, with the potential for appreciation. I can also be nearby or even live in the house to manage. Rent demand is very strong for multiple reasons (several universities, low inventory, Microsoft/other companies in the area). It seems like the economics work out.
The landlords have done a great job of screening (they can be choosy with huge applicant pool) and creating a great rental environment. All of the guys in the house currently get along great and it is very laid back. They say that they will teach me their landlording techniques/philosophy before selling to me.
Would like to see what you think about the deal and if you have any buying tips (negotiation, appraisal, attorney, etc.)?
Anyone bought off-market from someone they knew/trusted before? Anything I should be aware of or be sure to do?
Hello, welcome to BP! Any specific questions?
Is the garage build-out permitted?
Zillow Zestimate is worthless, call up a realtor and ask about recent comps in the area, or Use Redfin to do that.
Also, you know that phrase, never buy a car from a friend... unless they are acting as a mentor on you REI journey a home is a much bigger investment than a car is.
Hi @Nathan M. , you didn't mention a purchase price yet, but it sounds like you indicate this deal only makes financial sense for you in it's current configuration (room share rental with garage build out). Like @Troy Fisher mentioned, I would want to know if the garage build out was permitted. I have a suspicion it was not since the extra two beds and a bath are not showing up on Zillow (which pulls from county records).
Their interest in selling to someone they know and trust may have to do with the fact that they know the may have issues listing the home with a realtor in its current configuration. If there would be any reason in the future that you'd end up having to convert back into a garage and go back to a 3 bed home, would it still be a viable investment?
Also, you may run into a problem renting to more than 4 unrelated parties in Bellevue. Looks like this spring, the Bellevue city council approved a permanent ordinance against the practice: http://www.ci.bellevue.wa.us/11736.htm
You may be able to use this fact to get a better deal on the house. Do you think the seller would be willing to finance? What if you could structure the deal to give them the same cashflow that they've been receiving ($2500-expenses) without the management?
Thanks for the feedback. This is exactly what I was looking for. I had a suspicion that the garage build-out may not be permitted. Will need to check into it.
Also, good to know about the city ordinance. Looks like my scenario should be legal based on what I read. Will let you guys know how things go..
I was also going to chime in about the Bellevue city ordinance. This room renting is on the city and residents radar in Bellevue...especially if the property is located near Bellevue College.
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