Is this a good 1st rental?

25 Replies

Hello BP,

Last night I came across a good deal where I feel this can be a great opportunity to acquire my first rental but wanted more insight heres the breakdown:

The property is located in the city where there is some crime but the address is on a decent street

It is turnkey with current tenants paying 1125/month

Tax assessed at 30k, the seller is asking for 24k

It is a 5br 2bth home 

I am assuming it needs no work since its currently rented, should I attack this deal or walk away? Personally I do think its a good deal and I would like to negotiate for a better price but I wanted more insight from experienced and seasoned investors. 

Thank you!

@Andre Wilson

your saying that the asking price is 24k for a turn key that is generating 1125/m in rent???????

your cash on cash return would be like 135% with cap rate would be above 40% this deal doesn't make any sense and is way to good to be true. to put that in perspective in bad areas people look for 20% cash on cash your looking at almost 7x that and after 2 years of rental income the entire house would be paid off.... doesn't make any sense huge red flags

@Andre Wilson

Literally every financial number on this deal is too good to be true. There is no way it can be a turnkey.

I suggest you scroll through some of the analyzing a deal webinars that this site provides, should give you some good insight on what to look for on running numbers. Also scroll through some other deals and deal of the day post you should get a better idea of what is in line for potential returns for a buy and hold or a flip etc 

I actually am looking into a similar property right now. Cash flow is supposedly 1150/mo. with an asking price of 39900. I offered 35k with an inspection contingency. They said they would only accept the offer if I waived the inspection (HUGE red flag, especially considering it is supposedly "turn key"). After more research, I found out that the owner received a forgivable mortgage from the city as they wanted the area to improve. Forgivable mortgages come with stipulations. In this case, the only one (that I'm aware of -will be talking to someone at the city to confirm) is that the property would be rent controlled until the end of the mortgage term (2020). Not a problem though as numbers are still good. Though I can't have an inspection, I can perform a very very thorough walkthrough. I'm still going to pursue the property. No matter what, it doesn't hurt to offer as long as you are sure you have inspection and walkthrough contengencies. Will it end up being a flop? Maybe. but don't be afraid to dig for gold because it would be "too good to be true" for you to find some.
I should add that even if you end up only renting for 600/mo (still almost 2.5% of purchase price, btw) or have to put 30-40k into it to get it to where it will rent for the quoted rent, those numbers will still be good! Ex: 25k purchase + 40k renovation = 65k total to receive over 1100/mo in rent? Send like a good deal to me. Not to mention, if it is a crappier property in a slightly nicer area and you do renovations, you'll be adding equity.

Seems too good to be true...

I would double, triple, quadruple check these figures, scour the fine print, and be prepared to find out it's not as good a deal as this post implies.

Deals much worse than this one would get picked up in a matter of hours.

I just bought a duplex that's renting $1375 and paid $45K for it so anything can happen and your deal could be epic, but maybe not. 

What I 100% suggest if you decide to move forward (after going under contract) is HIRE A QUALITY INSPECTOR to do the inspection. 

I have saved THOUSANDS of dollars on every single property I've ever purchased (including my home) by receiving credits, negotiating a lower price, or by having the seller pay for repairs prior to closing. 

If all looks good with the report, pay the 24 K and enjoy your $1125.00 check every month. But if there are issues with the inspection, that's when you either walk away from the deal or if you choose, negotiate a lower purchase price. 

All my multi-family  properties were at least 50% occupied when I purchased them - all needed work to some degree. 

Let us know what happens!

Originally posted by @Robert Freeborn :

@Karl B. If I can ask, what area did you find that duplex in? Duplexes where I'm at are 300k+ for sometimes not even 2k a month. 

 @Robert Freeborn Hi. It's located in NW PA. They were asking more but they ended up taking my cash offer roughly a month after I submitted. 

When I assess a property, the first thing I look for is at least a 1% rent to purchase ratio.  I focus on upper lower to middle class homes in good neighborhoods, in a top 3 school district in Georgia.  With that math in mind, if I were to purchase this home, I'd be looking to get at least $240/monthly in rent.  This home is renting for nearly 5 times that. 

So is it a good deal?  The math says so, but I'd do a lot of research before putting in an offer.  Something doesn't pass the sniff test....

@Andre Wilson There are couple questions I would like to ask if I were you: 

1. What is the square footage of the house? If the house is less than 1900 square foot then it is likely the house has illegal constructions. 

2. When was the house built? It could be a really old hard-to-maintain victorian house. 

3. Do you have the opportunity to visually inspect the property before start the purchase process? Start the purchase process can be expensive... your inspection fees are not cheap after all. You should ask visually inspect the property. 

Prior sealing the deal, DO ask for bank statement from seller to show that tenants have been paying. The bank statement of the seller should show that tenants have been consistently depositing money into the account. You do not want to run into the situation where you have to be the person evict those tenants. 

Good luck!

Walk on eggshells around this deal. Anything CAN happen and this could be an amazing deal. But most likely this would be gone within 24 hours easy. Double check numbers and inspection

@Andre Wilson ,

One thing I have learned,  is when it comes to dirt cheap (we like under $20K) properties, they aren't priced that way b/c amazingly everyone else is missing out, they are priced that way to reflect the amount of work needed.   If it was turnkey, with a great tenant, why in the world would they be selling?    They are offering it lower, because the market is telling him your property is POS!...   It's likely a structure issue, roof issue, bad plumbing, etc...  they are likely selling because they don't want to invest any more $$$ to fixing it up.     Do you have people lined up to do that stuff?      Are you prepared for a $10K, $20K, or even $30K rehab?   We recently did a property, the sellers told us the roof was 5 yrs old... after we bought it, realized it was 100% lie.. their **4th** layer of shingles on the front was 5 yrs, but the actual roof was leaking-- $10K fix, added on!    

 If I were you,  I'd jump in, but again-- realize this isn't a turnkey property.. they are selling it that way to get it off their hands, remember everyone is looking out for themselves. 

I'm with @Greg Moss on this. I don't know how it could be a real thing at all. I wouldn't even consider moving forward without proof of a legit deed on the property, a full property inspection (by someone other than anyone with any relation to the seller), I would check tax records, I would confirm the tenant lease, and I would most certainly physically visit the property.

I'd be shocked if this is a real thing and not a scam... (no idea how one creates a full property scam, but those numbers are literally so wild that I don't know how it couldn't be one)

@Andre Wilson , I'm glad you took the time to post about this deal and I hope you take the time to evaluate the feedback.  

First thing that comes to mind is that the owner that has tax liens could likely have other liens. 

Second thought is that owner that has tax liens likely hasn't taken care of the property.  If all of these numbers were actually real, how many water heater/hvac/appliance/fixtures/electrical/etc. would need to go wrong before you had no cash flow? Landlord is probably a slum lord, I know you have margins to rehab but make sure you conservatively estimate rehab costs after your inspection.

Third thought, don't spend a dime on inspection or anything else until you get a clear report from the title company.  When I was BRRRRing I was under contract at least 6 times with properties that had liens or title issues.  It just comes with the territory.  Sometimes distressed properties come with distressed owners. Everything from the actual owner being dead to a lady not being able to find her husband.  No explanation, she just couldn't find him.  

Keep us posted.

Andre,

The numbers you are quoting are awesome, however just because it is currently rented doesn't mean that there isn't a long-list of deferred maintenance items. After investing for over 20 years and seeing 1000's of properties, I am still occasionally amazed at the squalor that people will live in, and what owners consider a property in "good condition".

I wouldn't pay a lot of attention to the $24k vs. $30k valuation because the city or county doesn't know the current condition of the interior on most properties. The valuations are inaccurate in a lot of cases either too high or too low. 

Have you actually stepped inside of it?  The line "I am assuming that it needs no work" makes me wonder if you have been inside?  

One thing to note is that there are some properties that are in such poor condition, that even if they gave you the property, it may not be a good deal for you.

Not shocked here and many areas have these type of priced rentals for sale all over. They almost always are in locations with well over 100 year old properties, horrible school test scores, high crime, high vacancy rates, vandalism, strip outs, abandon homes and commercial properties nearby. While it may not be what most folks want as far as exact turnkey physical condition there are some who would fix more and sell this as an actual formal turnkey property. I have seen these exact types offered by some posters above and other tk outfits for easy double or triple price with a little shine and marketing added. 

These highest rent to value ratios properties are usually for locals only and for good reasons. More of a low level job than a investment perhaps. Exceptions do exist! Shoot me over the address if you like and I can give an actual exact location opinion.

Good luck!

Keep following through. The minute you need to spend any money, make sure you are only connecting the dots to get to closing on a property that still "makes sense". Remember that your feelings are inconsequential to reality. Don't wish the property to be a good deal. My gut tells me that if you call the owner and its that good of a deal, he could have sold it ten times already. But stay with it. You will at the least learn more about the reality of buying/selling properties. Or you might actually have positioned yourself on this one perfectly and own that super money maker. Good luck!

Thanks for your response

After doing some research I found out that the property does need a little bit of cosmetic work I'm doing a walkthrough this Sunday so I will have a better idea of what work needs done the property was once a double that was de-converted, also there is a lien on the property of about 18k which raises great concern, seller says they will take care of the lein at closing.

Thats all the info I have for now until Sunday.