Putting in my first offer

[Gil Pang]

Hi all,  

i'm putting in my first offer on a 2 family home.  My goal is to buy and hold for cashflow.  (possible go section 8 route).

seller list price is 45k , i put in offer at 35k.  sell said to meet in middle at 40k.  I countered at 37k and i was told 40k is sellers bottom line.  im going to wait a few days and see if they get desperate and counter below 40k.  

Assessed value on home is 40K but there is some repairs/rehabs that need to be done from the initial visit.

- unit 1 ( 2 bed , 1 bath) currently rented for $625
 - unit 2 (3 bed , 1 bath) vacant (aproxx 750) (but section 8 , possible 1,071?)

one of the furnaces should be replaced as its quite old (assuming 1.5k for furnace & labor)
paint job needs to be done throughout the whole unit of unit 2 (assuming 800/1k)
outside of the house will need a new paint job (assuming 1k)
front porch area is pretty old (500 - 1k) - may leave it as is if i can just patch it up

**not to mention probably little things i will need to do to get it section 8 ready**

so my questions are:
1.  Since i'm a buy and hold investor (how much weight do i put on entry/purchase price)?
2.  how much weight to i put on future equity appreciation ( this area has not appreciated much in the past 5+ years)
3. COC ROI is pretty good even at 40k purchase price
4.  if fair market rent for a 3 bed is 1,071 on the website, will section 8 definitely that much?

im a newbie so excuse some of the stupid questions.  thanks in advance!

[Richard Lindman]

@Gil Pang

I have been following that particular formula, buying Class C properties and then renting exclusively to Section 8.  It is definitely a long term hold strategy designed for cash flow and not appreciation.  If I happen to realized any, it is a bonus.

Section 8 inspections in NY are fairly detailed and will require repairs to anything that fails.  I have had many properties receive their Certificate of Occupancy from the city only to fail the Section 8 inspection.

Just an fyi regarding the process.  It can add up to a month on your vacancy.  

1. After finding the tenant, the Section 8 inspection is required. HUD does not allow a tenant to take possession until it passes their inspection

2. This inspection normally will take place with 2 to 3 weeks after you call in to schedule.

3. If the inspection fails the first time, you could have another 2 week delay while you correct the issues.  Don't wait until you have corrected the issues, schedule the inspection asap and make the repairs.  You can always cancel if the repairs are not complete.

Be sure your Property Manager or qualified handy man is there with the inspector. If the violations are simple fixes, they could be addressed on the spot and save you the second inspection.

Good Luck.