Investor · Houston, TX · Member since 2015 · 26 posts · 3 votes
I'm an out of state investor looking at an 11 unit complex. The numbers look good and from the few pictures the realtor gave look decent.
My question is should I put a contract for the property and inspect it myself once we're in the inspection period? What if I don't like what I see once we're in the inspections phase? I known I can always put a blackout clause in the deal if I want to back out. But I want to know what you guys do!
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
When I'm selling properties if someone wants to put a contract on the property site unseen, I only do so with a significant EMD and I make the EMD nonrefundable.
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
9y
That depends. I would hire an local realtor paying him by the hour inspect the exterior. They may just show you one unit as typ (often better condition than rest). I will ask him to run CMA, cash flow analysis and hint he can be rewarded more real estate role. This can be 11 head aches if not evaluated carefully.
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
9y
When I'm selling properties if someone wants to put a contract on the property site unseen, I only do so with a significant EMD and I make the EMD nonrefundable.
@Russell Brazil, I wouldn't mind putting a $500 or $1000 EMD. Do you think that would work?
I've never seen an EMD that small even on the cheapest properties in my market. I'd want something like $15k or more nonrefundable to let someone tie up one of my properties with a site unseen offer.
1.) Pictures always look better than in-person. It's a blanket statement but I'm pretty darn sure it's accurate. I've never been pleasantly surprised (they have met expectations) but I have been dismayed. It helps to have a second set of eyes (like a realtor) by unless you have developed rapport with them it's hard to assume their version of "good" matches your version of "good".
2.) By the time you add up the non-refundable EMD and an inspection, you might as well fly out there yourself. And by fly out there I mean, this weekend. Just book a ticket and go. If it's not worth booking a plane ticket for, it's probably not a deal you should pursue. Again, another fun blanket statement but it's true for me.
3.) Plenty of people buy sight unseen. I don't. I can't. I just don't have that level of trust in anyone else, no matter how qualified. It's my capital and (more importantly) my debt to service. I'm also assuming that you don't have someone in the area, like a property manager, who can effectively juxtapose this complex against other real estate you own. My PM can't really say "yes, buy it" but I completely just her judgement when she says "no, don't buy it".
4.) I look at inspections (for better or worse) to almost "confirm" that I want to buy the property. I don't want them to nitpick for price reductions, what I'm looking for is outright deal-breakers. Anything small that does come up you can usually find a middle ground with pretty easily from the seller. Sellers that I've dealt with (generally) know what they have, the issues, etc.
5.) I'm also the guy that (when I'm looking to buy a property) I'm driving by it during the day, at night, at 3:00 a.m., etc. just to get a feel for the property itself, the neighborhood, the area, etc. That you can't outsource to an inspector and you probably can't outsource the 3:00 a.m. drive-by to the realtor either.
6.) If I'm serious about a property, like your 11-plex, I'm flying out and having the realtor show me another 5 properties. That helps me get to know the area a little better (if I don't already), juxtapose deals before an offer, not to mention that it will a.) confirm that the 11-plex is the deal for you or b.) end up with you learning about a deal that you think is better.
The net result is that so much of what I (personally) like to do when vetting a deal can't be done through pictures, offsite, etc. It's worth the price of a plane ticket (even a last minute one) to figure out if it's the right deal for me. I also don't end up making an offer I have to retract and drop 20% because the units were far worse in-person that in the pictures. Others will disagree, I'm sure there's value in locking it up, but a plane ticket would be my first step.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
@Mike F. Find other deals for your realtor to show you while you're out there. I can't tell you how much clarity I get from looking at 5-7 deals even if only 1-2 looked promising before I hopped on a plane. I know this much, 2 trips ago my "favorite" property before I hopped on a plane wasn't the one that I ended up buying.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
You guys bust me up ... putting in offers site unseen, in a market you know nothing about, thousands of miles away, with hardly any prior hands on experience, with $1000 EMD, but it doesn't matter 'cause I'll just back out and leave the seller high and dry if it doesn't work out. Hoppin' on a plane to go visit a market that is less profitable than the one you have right in your own backyard. Keep on savin' those frequent flyer miles ... I'm not a real investor, but I did stay at a Holiday Inn Express last night ... LOL.
San Diego, CA · Member since 2015 · 273 posts · 226 votes
9y
@Russell Brazil Who shows a MF without an accepted offer? Everything I've seen in San Diego stipulates no showings until the offer is accepted. Sure you can drive by, get a feel for the area, etc but presumably you've already done that if you're analyzing that property.
@Mike F. Will the selling realtor show it before your offer is accepted?
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
9y
we've done it. We just always have an out clause. Actually saw a property today that we had under contract sight unseen. Seller wouldn't let us in beforehand. No worries. Place was a dump and worse than we expected. So we're either getting a price reduction or a refund of the EMD.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
I do it all the time but it's really up to what your own risk tolerance sounds like.
Once you've seen 1 million class C apartment buildings you really don't need to go and tour them again. I review the financials, I want to have a good understanding of the location, and I look at the rent roll. The rent roll will tell me a lot about the properties condition. And if the units are occupied I know they have running water and electricity and it obviously good enough for someone to pay what they are paying.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Mike F. Inspected after you put it under contract. I know everyone is saying they like inspections before contract but when I'm selling a property I don't want 50 million people walking around my property when I have no idea if I will come to an agreement on a price with them much less their ability to close.
Likewise when I'm trying to buy a property why do I want to tour it before I know the sellers willing to except the terms of what I'm going to offer? It's a waste of my time. I'm always putting out offers on properties. If I come to an agreement with someone on the property and get it locked up, then I'll check it out. Not before. But again, I'm sort of weird
If you are worried about the non refundable part of your option fee then simply put it under contract and tour the next day or the day after. In most contracts you have 72 hours before those funds need to be deposited so you could always use that time wisely
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Also, Mike, Houston is one of the best places in the country to invest. Yes you can't get an 11 unit for 300k (well, I bought a 20 unit for 250k. And sold I for $759k. That seller has it on loopnet for 1.3m. Go figure), but you can come close.
There are plenty of 30'isk $k/door deals in Houston. I just paid 2.4 million for an 80 unit and just paid about 4m for a 120 unit. Both in Houston and both inside the loop.
Stick to Houston. Especially for something small like an 11 unit. That's way too small to have an on-site manager and too big not to have any presence.
There is a deal right now on loop net. I think it's 50 or 60 units? I think they want about $30,000 a unit. I offered 22. But someone came in at 28 and put it under contract but more likely close so I'll try to get it for 25
Investor · Houston, TX · Member since 2015 · 26 posts · 3 votes
9y
@Cody L. When you place a contract on a property do you usually go in with a lower asking price? Whats your rule of thumb? Do you go in asking maybe 10% less? I'd be getting about a 7% cap rate. Do your C class properties in Houston justify anything under a 10% return?
Also there is no where in Houston I can find an 11 unit complex for under 300k which is why I'm investing out of state.
Start in your own backyard, where you can learn to invest hands on and be in control of your own destiny. You don't need to start with an 11 unit complex, I promise you. However, you may need to get your hands dirty, and you won't be able to boast to your buddies that you own 11 units.
@Cody L. When you place a contract on a property do you usually go in with a lower asking price? Whats your rule of thumb? Do you go in asking maybe 10% less? I'd be getting about a 7% cap rate. Do your C class properties in Houston justify anything under a 10% return?
I offer based on what I feel a good price per door is on that submarket (vs. what I know others have traded for or what I've bought for), adjusted for how that property might be different. Or what price:income ratio I'm comfortable with in that submarket based on the same.
I don't make my offer based on a % off list. And I don't make it based on CAP. I can make a CAP on a property look like any # I want to.
When I'm selling properties if someone wants to put a contract on the property site unseen, I only do so with a significant EMD and I make the EMD nonrefundable.
As someone who makes offers sight unseen, I hate your rule, but it is brilliant. Good thing for me most agents aren't as good as you!
I like the advice, if it isn't worth a plane ticket to you, it isn't worth the investment.
Yes, there are guys who are super experienced and will buy site-unseen. You don't seem to be that experienced yet, which is fine. But you need to see it, smell it, experience it.
