Pretty exciting! So I found a 3/1 SFH in a decent area of a small city. Owner is a widow and is now living with family member. She had a renter who ruined carpet and kitchen linolum. Actually has nice wood floors that can be refinished in all rooms but kitchen. This is a 900 sq ft house. Its in decent shape, built in the 50's. She wants "25 to 30k". I mentioned seller financing and she was very interested. House is paid for. I am just practicing at this point finding deals but will gladly make a deal. It needs about 2000 in repairs as far as I can tell. She said it previously rented for $850. This seems on the high side for the area but not out of line. She is going to talk to her attorney and get more guidance on seller financing. I told her I could not put anything down as I would need that for repairs. So here is what I am thinking. Offer 20k, 0 down, 10 years at 5%. This would give her just over 25K after the loan is paid. The house asseses for 53K. I think I could get $750/mo in rent at minimum. So it meets the 2% rule and would cashflow at $162/mo using the 50% rule, assuming the 2000 in reno and 1000 in closing costs (not sure what that would really cost yet).
Would I be wise to get a professional appraisal and/or inspection? Or find someone who knows what they are looking for for a quick walk through. ie friend?
Any ideas on closing costs?
Would love some feedback if that is enough to go on! Thanks!
Since you are new an inspection is certainly a good idea. Be there when the inspector comes it will be like getting an inspection seminar.
Regarding the appraiser it just depends on how comfortable you are with your valuation of the property.
Definitely get the inspection. Appraisal...I wouldn't bother with personally.
If you are sure on your value, getting an appraisal would be a waste of money. Long term, I think you need to know value good enough that you don't need one.
However, knowing an appraiser is not a bad idea. Most appraisers do lending work and only want appraisals from lenders that pay them $350-$550. However, you might could get an appraiser to do a drive by or just look some stuff up for you for $150-$200. I
f you called me, I'd look it up for you for free. Technically, when doing "verbal" work, we have to say that it's not an appraisal and just give you general numbers of comps, as opposed to doing an actual appraisal. But, I always help my investors, realtors, and clients for two reasons: I want to know investors and how they think and what they are doing, and I want to be the first guy you think of when you do need an appraisal or an expert on value.
I would get an inspection. If she balks at the no money down idea, offer her something...maybe 2-5K to show you will have skin in the game. Some sellers may be reluctant to sign away a property to someone with nothing invested. If you are sure about the numbers, forget the appraisal. Good luck.
Get the report if you can. At the same time I take it this has no recourse. There for worse case even if it goes south, you are only out 2,000 for repairs and your credit score is un touched. Just went to a thing at SJREI meeting this month where a guy talked about this. He would then sell the home as a lease option to a tenant that would pay you a nice chunk up front. They are then responsible for repairs and maintenance going forward. Just a thought.
An Appraiser informs lenders if the home is worth the loan. You are generally your own appraiser and can probably do a better job. An inspector checks foundation, roof, mechanicals and structure and will inform you of any threats to your investment. This helps you protect the home from deterioration and also gives you a checklist of repairs that you can expect to be cited by another home inspector when you sell the house or arrange a section 8 lease. If it saves you a month of repair time, you'll have already made up for the ~$400 inspection fee.
Good points @Scott DeMichele
This is not to start an appraiser/inspector war, but I think we have unique vantage points. In a perfect world, you need neither. You know your values, and the price is good enough to offset any repair issues. In the real world both have their place, as do contractors.
I know you didn't mean it as a slight, but we don't all just tell lenders stuff. I know value, better than most (not all) investors and realtors. And, I doubt a first time investor knows value better than a GOOD appraiser. In a perfect world, you would know an appraiser and an inspector, who both own property. Then, you can get around some of the legal/technical stuff we are required to do, and ask the questions that matter.
Thanks for your gracious note. After reading what I posted I see how it comes across as dismissive and paints the profession with a broad brush. My bad.
It was a (rather unfair) projection of my own (flipper) experience with appraisers representing lenders. It is their job to be conservative even if it ruins a deal. (it hasn't yet, but they make me bite my nails) I should know better because home inspectors are often seen as the snag-in-the-deal bogeyman, yet I must report everything I find even if it could kill the deal.
Just because I don't use an appraiser myself doesn't mean another investor won't benefit from one.
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