First investment property

2 Replies

Single family home 1200 sq ft

Motivated owner. 

Owes 103,000 on home, has a quit claim deed to home. 

Homes similar have sold 114,000-120,000

Owner says need new carpet and to pay off new a/c unit $5400 Loan and a few other repairs

He’s asking $109,000

Could rent for 900-1000

Is this a bad deal?

*cash flow 148/month

Cash on cash 5.3%

Return on investment first year -26%

Bad idea? Doesn’t want to do lease option because he wishes to sell and house shop this year or subject to. 

Erica, 

Not quite enough information to really help.

A couple of things to be aware of: make sure all your profit numbers are after all expenses. Your 148 per month sounds a bit high for a sfr at just under 1%. 

Also, you don't mention how much cash you are putting into the deal, just percentages don't really tell us much.

If you can put this into one of the BP calculators,  and share the results it would get you better support.

Good luck, 

Jim 

My impressions:

 - With the information you have provided, it is hard to tell if this would be a good first deal.  On the surface, it looks marginal.   

 - Given the repairs you noted, it appears you are effectively paying full price for this property.

 - Does your cash flow figure include repairs and vacancy?   I would budget about $250/month for those things.  If that puts you at a negative cash flow, I wouldn't buy this property.  If $148 is a true cash flow number, then it is worth looking deeper.

There is a way to turn this into a very good deal.  (This is a more difficult route but could be worth it.)   The owner can't reduce his selling price much due to the size of his mortgage.  However, you could put an option to buy on the property and see if you can help the seller get a principal reduction, allowing you to buy the property at a lower amount.   That can be a lot of work with the lender and babysitting of an anxious seller.   You would also want to be sure to have a solid contract so you don't lose the deal after doing all the work.    It is a more advanced strategy.  Only you can decide if it is worth the brain damage to go down that path.

Final thought.  Quit claim deeds can be problematic.  Be sure you close with a reputable title company / attorney.


Hopefully my comments don't demoralize you.  Success in real estate comes to those who keep moving forward.   Keep pushing.   

In the (paraphrased) words of Winston Churchill "Never, Never, Never, Never, Never give up."

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