Should I Buy Or Should I Go

Question

I have been living in a rental SFH since 2008.  It has been my intention to live here only until my kids went to college which the last one will be leaving to attend college this fall.  The homeowner has been considering putting the home back on the market but has not pulled the trigger yet.  I have toyed with the idea of possibly now purchasing the home - not for me to live in but as either a rental property or as a buy and hold.  Since I have lived here for the last 8 years I have a good idea what is wrong and what needs to be addressed in either scenario.

My limited experience has me thinking I could invest the few hundred dollars to determine the exact issues with the home to use as leverage in an offer.  For number sakes let's assume the home could be listed at $220K as is.  I believe there is about $10-$20K of work needed (primarily the HVAC).

As an absolute beginner - what is the best way to evaluate if the property is better suited for either a rental or buy and hold?

Thanks

Tom

Troy Fisher · Answer

You are looking at doing a Rehab and Sale or "Flip" vs purchasing it as a Rental or "buy and hold" property.  There's not really a specific action to take to determine which is best, a Home Inspection should be done regardless of any action if you choose to purchase the property.

Rehab you'd want to purchase at 70% of the Retail Value so at $220k you'd be looking at trying to purchase at $154k. Do a BP search for 70% rule for more information on that.

To determine rents go to www.rentometer.com and put in the details to see if you are near market price/

Tom Dwyer · Answer

Hi Jonathan - thanks for the feedback.  Sorry if my post wasn't clear - I wasn't asking if it was better to own than rent.  I completely understand the pros and cons of of both and I decided renting these last several years was best because it fit my situation during that time.

I am moving from this area regardless of what I determine to do with the home I am in.

So let me rephrase my question...

Let's assume the home will sell at $220k in its best condition. I know the HVAC needs to be upgraded and some other minor issues corrected - I have had estimates done that it'll cost about $10-$15K to replace the HVAC.  Knowing this I think I might be able to work a deal with the current homeowner to purchase the home for maybe $190k - best case $185k.

My thoughts at the a moment were to consider the following:

• Pay for a home inspection to understand the true issues and determine if anything else is needed.
• Consult with a realtor to make sure my $220k sale price is realistic in this area - I think it is based on other comps I have researched.
• If $220k is real & repairs are ~$10k I would offer homeowner $185k
• Purchase home, make repairs and decide rent or list.

If my numbers are correct and I list it - I could pocket around $10k within a year probably 6 months based on current real estate activity.

I need to figure out how to determine what it would get in rent and am not certain how to do that yet.  Right now I pay $1250 which - based on your analysis above - makes this not a good rental opportunity.

This just happens to be a potential opportunity right in front of me because I am the renter and intend to move out, I know what's basically wrong with the property, I have a sense of what is happening in the surrounding area real estate market and I know the homeowner is looking to sell (they are out of state now) so there is some motivation.  I am trying to vet my thought process and determine if I am thinking clearly.  Any feedback is welcome.

Thanks againTom

Jonathan Towell · Answer

In most situations, owning your home is going to work out better than renting.

Let's say you get it for $220k. Let's also ignore the $10-$20k for now because you are living in the house as-is. Let's assume you put 20% down. So, your total loan amount is $176,000. Assume 30 year amortization and 6% interest rate. Your mortgage payment will be $1,055. Add in $2k/yr for insurance and $3k/yr. Those add $416/mo. So, mortgage, insurance, and taxes are $1,472.

Are you paying more than that on rent?