Is this a good deal or bad deal?

21 Replies

Hello BP Members,

My wife and I are looking to get into Rental Property Investing (Multi-Family), and we may have found a property. Let me know if you think this is a good or bad deal?

Property Info: 

Single Family, however has a back house that could be used as another unit to rent. So more like a Duplex, but back house needs some work to be converted.

Property still needs work, at least 15k to 20k of repairs.

Comps in the area are low, Range 85k-90k

Market Value- $67,000

Asking Price- $87,500 (Not turnkey but seller still going based off comps)

Offered Price- $66,000

The Seller counter backs with $82,000 and says can't go lower.

I countered one last time with $70,000 and pay closing cost as well, if they don't accept I'm moving on. 

Rent for each unit based on comps is between $800-$850, based on the BP Calculator the property will Cash Flow around $532.00  

If they accept $70,000 and I have to put in 15k-20k of repairs in property, is this considered a good deal or bad deal even though it would be cash flowing?

I won't go any lower and I am definitely going to keep emotions out of this.

I hope to hear your feedback!

Thanks,

Gregorio Martinez

@Gregorio Martinez You may be confusing terms but if market value is 67k abs you’re paying 70k plus another 15-20k you’re paying way over market. I doubt your cash flow is accurate either

There is no way for anyone here to tell you if a deal is, that differs from person to person. They key to long term success is to identify buying criteria that help you achieve your long term investing goals and be ready to act when you find a property that meets that criteria. 

@Caleb Heimsoth, thanks for your response. So the comps in the area are between 85k-90k and that is what the seller is basing their sale off of, they aren't basing it off market value. Also, if I convert the back to an apartment it would be very similar to a Duplex. Unit 1 and 2, would rent for $850 each and this would bring a total $1700 per month on the property. Each Unit would have 2 bed/1bath, 910 sqft each. 

Gross Income: $20,400

Annual Expenses: $13,988.40

Annual Cash Flow: $6,411.60

Annual expenses, include- water, lawn care, capex, property manager, maintenance, vacancy, Insurance, taxes. 

But yes, I'm paying more than market value based on County Records. However, I have not purchased this property yet.

@Dennis M., thank you for your response. Correct, I am paying above market value for that property, however they're basing their price off comps in the area 85k-90k. If I kept it as a single family, I wouldn't cash flow and that is the reason why I would want to turn the back house into a small apartment. However, keep in mind I haven't purchased the property yet.

@Gregorio Martinez It wasn’t so be glad it didn’t go through . Now your that much wiser and can find a much better deal . Sometimes we need to thank God for unanswered prayers . Look for distressed multifamily apartments that’s where your money will be

It depends on your criteria.  If those comps of 90k are in good condition and are representative of what you will have after you put in 20k it does not meet my equity requirements.  I look for deals where the equity is greater than my purchase price + renovations.  

That cash flow sounds appealing though and would likely meet my criteria.  What kind of neighborhood is this in?

@Tyler Weaver

This property is in a "C" neighborhood at the best. Median household income about 28k, and population based on zip code is 31,000. If you are familiar with San Antonio, TX it's in the South Side of town. And yes a property with no equity is deal breaker for me, and to be frank the appreciation in that area is not so great.  

@Gregorio Martinez Hey Greg I know that area fairly well and I do not think that is a good deal what so ever. Firstly, I would like to say good job on keeping a level head and looking at the numbers more than most people do. I see too many people get emotionally attached to a deal, or overlook things so they can say they got their first deal ASAP.

I know that the BCAD value isn't accurate, but I'm sure it will need more than 20k to make it desirable enough to rent for a decent amount. Granted I haven't seen this specific property but that doesn't change the fact that the seller is smoking crack from the information I have read. Is the property on the MLS? Because if so..... it probably isn't a deal. I hate to be a debby downer, but if it's on market and isn't gobbled up within a week or two there is probably a reason why... most good cash flow deals sell instantly and are off market deals purchased by cash buyers.

I would avoid using just any agent because 90% of them have no clue what an investor is looking for and what makes a property an "investment property". Did you do research yourself on the comps and sold properties in the area? Most agents put the best house, with the highest sold price that is somewhat close to the subject property, and call that a comparable. This obviously will inflate the ARV and make their asking price look better. You can't blame them either, because they are trying to get the highest price possible for their client. My 2 cents is that 85k is the ARV of a lot of homes in the southside... and that is what they are asking right off of the bat?! There are so many things that go into what makes something an accurate comp but I'm sure there are plenty of articles and stuff of that nature here on BP for you to read through.

I would really suggest finding an investor friendly agent (I'm sure there are several here on BP) and working with them. I know I don't know the exact property and the exact condition it is in, so I made a lot of assumptions but I hope I helped you out my friend. It seems like you are on the right path! Don't stray away from the numbers just so you can get your first deal. Patience and persistence are so important! Good luck!

@Michael Guzik Thank you for your response and advice. This property is listed on the MLS and as you said most deals are gone with a blink of an eye. Since it's still on the market I can see that it wasn't a good deal. You hit on all points and I appreciate you for going into detail.

Originally posted by @Michael Guzik :

@Gregorio Martinez Hey Greg I know that area fairly well and I do not think that is a good deal what so ever. Firstly, I would like to say good job on keeping a level head and looking at the numbers more than most people do. I see too many people get emotionally attached to a deal, or overlook things so they can say they got their first deal ASAP.

I know that the BCAD value isn't accurate, but I'm sure it will need more than 20k to make it desirable enough to rent for a decent amount. Granted I haven't seen this specific property but that doesn't change the fact that the seller is smoking crack from the information I have read. Is the property on the MLS? Because if so..... it probably isn't a deal. I hate to be a debby downer, but if it's on market and isn't gobbled up within a week or two there is probably a reason why... most good cash flow deals sell instantly and are off market deals purchased by cash buyers.

I would avoid using just any agent because 90% of them have no clue what an investor is looking for and what makes a property an "investment property". Did you do research yourself on the comps and sold properties in the area? Most agents put the best house, with the highest sold price that is somewhat close to the subject property, and call that a comparable. This obviously will inflate the ARV and make their asking price look better. You can't blame them either, because they are trying to get the highest price possible for their client. My 2 cents is that 85k is the ARV of a lot of homes in the southside... and that is what they are asking right off of the bat?! There are so many things that go into what makes something an accurate comp but I'm sure there are plenty of articles and stuff of that nature here on BP for you to read through.

I would really suggest finding an investor friendly agent (I'm sure there are several here on BP) and working with them. I know I don't know the exact property and the exact condition it is in, so I made a lot of assumptions but I hope I helped you out my friend. It seems like you are on the right path! Don't stray away from the numbers just so you can get your first deal. Patience and persistence are so important! Good luck!

That’s some great advise for any area  

@Gregorio Martinez buying in those areas while you might be getting higher cash flow you get almost no appreciation and trouble tenants. There's definitely no reason to have negative equity in San Antonio. Buying good deals off the MLS is very hard but doable. I recommend reaching out to an agent that's also an investor. Stay away from the big wholesaling realty companies. They pray on new investors. Another to keep in mind is many houses in SA have foundation issues and a lot of new investors overlook this. Make sure you get a foundation bid before you buy.

Hey @Gregorio Martinez you have gotten lots of good advice above. Let me add a little to this.

IF you want to find consistent deals you have to do the marketing yourself. Right now there are too many people chasing too few deals on the MLS. That is why something half way decent is turning into a bad deal by getting bid up to market price on the first day or two. When the market is flooded with foreclosures, days on market are 100+, homeowners are begging you to take their house, THAT is the time to use the MLS. It will be like shooting fish in a barrel.

At this time, you have to do your own marketing. Drive some areas and look for vacant houses, get in front of the owners and ask if they want to sell. Maybe pre-foreclosures. Maybe buy a list and send postcards. But you have to get in front of distressed homeowners to find deals right now.

@Rick Pozos Thank you for your response. Very interesting that you mention driving for dollars and Marketing, my wife and I were just talking about that today. It's really a needle in a haystack on the MLS to find a good deal, but I'm with you on going out and finding the deals ourselves. Your response is definitely a sign to take action and go knocking on doors to acquire a good deal and make things happen.