Buy and Hold & What to look for, first property in Indiaola, Iowa

7 Replies

So, I noticed that there are four property's (3 are duplexes and one 6 plex) on the MLS. All have tenants. As much as I would like to buy all four, only the 6 plex is offering seller financing (I don't have close to 20% down). However, the 6 plex was up for sale last year and it has been about halfway through the second year of being up for sale. I guess my question is should I find an inspector and try to buy the property or just walk away with out knowing? last year I saw it and my realtor (whom I bought my home through, so no investor thought process) said several people had looked at the property and did not buy it, so I shouldn't either. the other question is if I should look at it what does the process look like? I'll probably have and attorney for the contract to buy should I look at Ken Mcelroy's book for a process? I would post Numbers but I cant upload the Excel sheet.

Have you actually looked at the property? I don't think the fact that other people didn't buy it is a valid reason for rejecting the property off-hand. Who knows what the situations were. If it's been on the market for a long time, it might not have anything to do with the condition of the property, but rather, it's lack of strategic placement in the market (which is a fancy way to say it's overpriced). I would definitely investigate it if you think the numbers might work. Due diligence is so important. Take the time to find a great inspector and get them out there to go through it.  I would suggest having an agent who understands investment properties to guide you through the process, if you're new.  Find the spot at which the numbers work for you and there's your maximum price. Will the property likely need a new roof, mechanicals, etc. in the next few years? Factor those things in to the numbers and negotiate. If the seller is willing at that price, then you have a deal, if not, you walk away knowing you saved yourself the headache and you got some education.

I have looked at that property and the reason it is still on the market is that it is overpriced and also a very poorly set up lay out. It also needs a lot of work and the rents are really low for the expenses. The numbers just don't match the price on it. 

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@Celeste Karan I haven't gone in and looked at the units or physically been there looking, but I talked to the realtor and ran what numbers I found on my own. The rent is one thing I wasn't able to verify without a rent-roll. 

So, worst case senero: I spend money on an inspector and learn what to look for. Other than call the city, do either of you know where I can inquire for someone to look at properties?

Thank you for your Help,@Adam McCarty and @Celeste Karan.

Hi @Rob Witt . I think I may know the property you're talking about. If it is, in fact, the same property - conversion with 5 partial and 1 full bedroom. I've also inspected it (rather had a friend inspect it since I live in Tokyo, but I digress.)

As @Adam McCarty said, I just couldn't make the numbers work. It's overpriced with a fair bit of deferred maintenance issues and one of the units was midway though a questionable renovation. Reliable tenants may be difficult to find for a place like that as well. 

It may still be possible for someone with more experience to make a profit on it somehow, but I think it will take a lot more creativity than just treating it as a buy-and-hold. 

If you're just getting started and want to get in to buy-and-holds, I'd recommend avoiding conversions. It's best to start with a proper duplex/triplex/quad as they've got fewer surprises. They're also much easier to run the numbers on because of this. 

Finally, if you're low on cash, I'd recommend building up a bit of a stash first. Even if you could get that deal, when the cap-ex hits, it's gonna hit hard. Otherwise, if you find a real deal in the meantime, keep networking and perhaps try to find someone to go in on it with you.

That's a good point @Matthew Pinkston , nothing like building cash flow only to blow it on deferred mantance and go back to 0 or worse -0. I may have found someone with the 20% down, found out how much I can loan. I'll more into duplex/triplex/quad(s), I just hope I can get something before 2017.

@Rob Witt

First of all, my business partner and I own a lot of rentals and not much scares us. We work/invest/live in the Waterloo, IA and area.

With that said, I personally don't dismiss any property until I have found the number that will make it work for me and decide if the amount of work justifies the potential profit/equity. As most everyone has said, take into account the deferred maintenance and as many other expenditures and you can find and build that into your price and cash flow. Then just explain how you came to that number to the seller when/if you choose to begin negotiating. 

With that said, if the seller has had it listed for a long time, he/she may not be willing to negotiate, which means they are not motivated, which means less chance of a good deal. If you choose to pass on this one, keep looking you will find a good deal. Just keep searching. We wholesale a lot of our deals, but we also market to find motivated sellers.