I just shot off my First Offer for Investment Property...eeep!

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I just shot off my First Offer for Investment Property...eeep!

Jim Keplinger
Bloomington, IN · Member since 2017 · 21 posts · 3 votes

Good Evening BPBT!

So, I pulled the trigger...whether it hits anything or not is completely up in the air tonight...but I have a profound dislike of cowards, so by gum, I ain't gonna be one! (This colloquialism in tribute to my current home in Indiana...please forgive me).

I would LOVE your thoughts, advice, and wisdom!

So, did I shoot the moon? Shoot myself in the foot? Or shoot nothing? Here's the details and my opening offer info:

Two duplexes in south-central Indiana (about 20 miles outside Bloomington) built in 1998 listed for 234k 

  • 4 doors, 12 beds, 8 baths. 
  • Fully rented at this time, two leases up but already asked to extend. One of the tenants is ripe for eviction. 
  • Current rent roll is $2800 gross (~$700 each). This is low for the area, these units can easilly be $800 or $850 each.
  • Current owner pays all water, sewage, and trash (that's going away ASAP).
  • Roofs are original and show it, they need to go.
  • Three HVACS are getting long in the tooth, one installed illegally. 
  • Two of the four water heaters are questionable at best.
  • One of the units has a "soft" kitchen floor implying water damage.
  • All units have carpet (even in the bathrooms) that need to go. 
  • The owner has turned down offers of $220k 18 months ago, and $180k a year ago. There has been no offers or interest since (according to the RE Agent).

My offer: 129k based on the rent roll and imminent CAPX. Too high? Too low? Where do I go now? 

Thank you in advance for any and all thoughts!

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Craig CurelopBusiness Member
Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
9y

@Jim Keplinger - I am not in your market so it is tough for me to make a decision on if that's too high or too low. $129k seems like a pretty low offer, I would think you'd be good here. 

Sounds like the property needs a little bit of work. Once you get it settled though, it looks like you'll be able to raise the rents and can cash flow nicely. 

In the WORST case scenario, you will be over budget in your repairs and have over estimated the amounts you can get for rent. Maybe you lose a couple of bucks in this deal? But you will definitely gain invaluable experience through taking action! So Congratulations man! Even if you don't get this one, keep making offers until you can get in the game. 

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  • Craig CurelopBusiness Member
    Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Jim Keplinger - I am not in your market so it is tough for me to make a decision on if that's too high or too low. $129k seems like a pretty low offer, I would think you'd be good here. 

    Sounds like the property needs a little bit of work. Once you get it settled though, it looks like you'll be able to raise the rents and can cash flow nicely. 

    In the WORST case scenario, you will be over budget in your repairs and have over estimated the amounts you can get for rent. Maybe you lose a couple of bucks in this deal? But you will definitely gain invaluable experience through taking action! So Congratulations man! Even if you don't get this one, keep making offers until you can get in the game. 

    [email protected]Podcast Guest on Show #350
    2Reply
  • Alan Turner
    Commerce Township, MI · Member since 2017 · 21 posts · 5 votes
    9y

    That's awesome and congrats on taking that step! 👍

    1Reply
  • Jim Keplinger
    OP
    Bloomington, IN · Member since 2017 · 21 posts · 3 votes
    9y

    Thank you, both!

    0Reply
  • Charles Sinn
    Investor · Bloomington, IN · Member since 2015 · 12 posts · 9 votes
    9y

    Is this your first investment property?  Do you work full time outside of real estate?  Could be biting off more than you can chew.  But if you have work flexibility I think its a great deal even at a higher price point.  Its all about 3-4 months of slow going tough work for 30 years of easy cash flow... You just want to make sure you don't get burnt out or run out of cash.

    If it is your first deal, good work.  I wish I jumped to multi-family to start.  Good Luck

    1Reply
  • Andy Rumple
    Wholesaler and Real Estate Broker · Indianapolis, IN · Member since 2009 · 438 posts · 293 votes
    9y

    Given the work they need you may be a bit high but you will find out don't worry about that!

    0Reply
  • Ben Wilkins
    Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
    9y

    @Jim Keplinger - Based on $800 per unit, I would say that the value of the property is around $200,000 if it was in good shape (ballpark).

    Without understanding the repair costs, it'll be tough to come up with a number on what the property is worth.

    The next step that I would suggest: take a contractor through to get a better estimate on cost of repairs (unless if you already know those numbers). 

    Keep your repairs around $70,000 and you should be in the ballpark of having a decent rental to hold onto. If I were to find out that the repairs would be under $70k, and if I knew the market well enough to think that $800 per unit was average, I would have felt comfortable making an offer at the same price that you made.

    That being said, you have a lot of "if's" to make this work - you need to be able to rent the units at $800, you need to get all of the repairs done within budget, you have to be able to carry the cost until the units are rehabbed, etc.

    0Reply
  • Jim Keplinger
    OP
    Bloomington, IN · Member since 2017 · 21 posts · 3 votes
    9y

    @Charles Sinn : Assuming that this goes through, yes, it will be my first. And while I do "work" outside of real estate (of which I am a newbie but a dedicated student, my work is a few businesses I own...and operate as little as possible. My goal is to continue my full-time studies into full-time investing. I'm excited to see another face from Bloomington! I'd love to have a coffee and hear your story, perhaps learn from your experiences.

    @Andy Rumple : Chuckle! Yes, I have no worries that I will find out soon enough. Eeep!

    @Ben Wilkins : Excellent feedback, thank you! I'm ballparking my figures around 20k-30k for the repairs...but it's a very large ballpark and I may have missed some folks in the stands. Besides, I don't expect the current owner to bite at this price...but if she does I'd be ok with that. Thank you!

    0Reply
  • Aaron Curley
    Wilmington, DE · Member since 2017 · 19 posts · 7 votes
    9y

    Congrats Jim,

    I am a new investor also and I always tell myself, you can always come up in you offer but you can rarely go down from your first offer.  

    Good luck and I look forward to hearing about your first deal!

    0Reply
  • Thomas Landis
    Rental Property Investor · Bloomington, IN · Member since 2014 · 119 posts · 28 votes
    9y
    Jim Keplinger - congrats making an offer! From my experience in Bloomington, you might get laughed away. Have the sellers responded yet? You might be interested in our small but growing group of local investors. We meet the 3rd Monday each month at 7pm and in July we will be at Crazy Horse. This month is a casual meet and greet format but we also spend time analyzing deals, hearing from area service providers, and helping each other out! Good luck to you and hope to talk with you soon!
    0Reply
  • Jim Keplinger
    OP
    Bloomington, IN · Member since 2017 · 21 posts · 3 votes
    9y

    @Aaron Curley That's my thinking as well! I used to live and work in Montchanin just north of you, small world indeed!

    @Thomas Landis I suspect I'll get laughed off as well, but it was the smart opening offer, I thought. I would LOVE to meet up with you all, thank you for the invitation! That's the 17th this month, yes?

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    You missed the most important part of the analysis IMO. You are talking about residential real estate, and that is valued based on sold comparable properties, not on rental income, GRM, CAP rate, etc .. show me the comps! Analyze and buy it like a flipper would, and if you don't like the results of holding as a rental, then you can sell it for profit like a flipper would too.

    0Reply
  • Jim Keplinger
    OP
    Bloomington, IN · Member since 2017 · 21 posts · 3 votes
    9y

    @David Faulkner Great advice! Thank you! I'm still trying to learn the comps and how to do them (especially in such a tiny town), but your point is VERY well received and I'll endeavor to get them right! Thank YOU!

    0Reply
  • Ben Wilkins
    Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
    9y

    @Jim Keplinger - while I agree with @David Faulkner, I also disagree. Every rental property that I purchase, I base my numbers as if it were a commercial property. My cap rate and profit per door goals may differ a little, but I rarely base my numbers off of comps simply because the 2-unit through 4-unit properties appraise and comp differently, and each property is different.

    Even with a duplex, I will run the same calculation and will determine the max offer price that I am willing to pay. While the bank may appraise it based on comps, I can't buy based off of that when I have an investor who want income from a duplex. While my offer won't be accepted every time because I may be below the comp value, I know that my properties will perform on a monthly basis because it's simply a (much) smaller scale of a 30-unit apartment.

    1Reply
  • Thomas Landis
    Rental Property Investor · Bloomington, IN · Member since 2014 · 119 posts · 28 votes
    9y

    Jim - Yep! I just posted the event and tagged you. Just in case here is the link: https://www.biggerpockets.com/forums/521/topics/40...

    Also - @Ben 

    @Ben Wilkins, I think you are spot on and agree that multifamily analysis should be based on performance, even duplexes. 

    0Reply
  • Jim Keplinger
    OP
    Bloomington, IN · Member since 2017 · 21 posts · 3 votes
    9y

    @Thomas Landis and @Ben Wilkins Thank you for opposing ideas! I really, really appreciate the added insight!

    0Reply
  • Clayton Barnes
    Bloomington, IN · Member since 2017 · 53 posts · 37 votes
    9y

    @Jim Keplinger So how did it turn out? It looks like it has been a couple of weeks since your offer. 20 miles outside of Bloomington are you talking Bedford area?

    I've been looking around there a little and it is an interesting market. I grew up in Bedford. The area is kind of fading from a jobs and immigration standpoint, but rents and property prices still seem to be surprisingly high.

    I've not dug much into the commercial market in Bloomington yet, but man the residential market here has been crazy this spring. Seems like houses are just flying off of the market. Everyone I've talked to who was selling seems to have accepted an offer within a very short time.

    0Reply
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