Buying the Home We're Renting from the Owner without Realtor?

9 Replies

Our family has been renting a single-family home (see description/additional background below) for the last 2 years and are considering buying the property from the landlord via private sale. We have an excellent relationship with the landlord - he is a retiring military officer and lived in the home for 10 years prior to us moving in. He planned on being stationed back in the area but those plans changed recently and so he and I have spoken a bit about the sale already. We have not had an appraisal done but will have that completed in the next few weeks. The owner has already told us, however, that he will pass some/all of the realtor savings on to us and based on some rough numbers I threw out because of neighborhood comps, it sounds like he would price it to us below-market by 3-5%. 

I'm relatively new to Bigger Pockets but I am a "value guy" -- LOVE unlocking value where it is going undiscovered. I have owned 1 home in the past (bought at the trough during the Financial Crisis, renovated, lived in it, rented it for a year, and then sold it for quite a bit more than we paid). All that to say, I think that this deal could potentially represent a pretty interesting investment for us but given the high price of homes currently, I'm still somewhat torn. Here are some further details that may help you all weigh in on the pros and cons:

  • 4 bedrooms, 2.5 bath, 2200 sq. ft., split level, finished basement, 1 acre, roughly valued at $500k
  • Located in a quiet late 70's neighborhood just outside an expensive urban area. Highly desirable location, school district, is a "coveted location" by locals because most of the land is developed and it sits off an extremely accessible road
  • Our current rent: $2,500 + Utilities (the home could almost certainly rent for $3k). The owner pays for a yard service and opening and closing the pool. Home could easily rent for $3,000+.
  • It is the next-to-last house on a quiet street, our lot is next to the home of the person who sold the development back in the 70s  and he kept 20 acres to himself -- so our home's backyard and to the side is 20 acres of woods and trails that won't be developed
  • In-ground swimming pool with a new pump and pool liner
  • New water heater, washer and dryer, and full-home water filtration system (all put in just before we moved in)
  • Renovated kitchen
  • Extremely unique "sunroom" that the first owner had custom-built with huge nearly floor-to-ceiling windows. It's definitely the "wow" part of the house when people walk in .... but I also worry about the replacement cost of the custom windows that are each about 8' x 2.5'. No leaking yet but have no idea when/if those things will go.

All right, Bigger Pockets folks -- would love your thoughts on this. What sorts of things should I be considering about the home, the potential deal/negotiation, the timing of the market right now? Any considerations I should be giving to purchasing via private sale? What is my next step of action in this aside from the appraisal? Appreciate you all! Sorry for the long post but I trust you all have considerable more knowledge than this newbie!

Andrew, at the end of the day you have to ask yourself one simple question: Do I want to buy a home or do I want to buy an investment? The former is a liability (expense), the latter is an asset (income producing). If you want to buy a home, then you've got yourself a slam dunk. DC is a fantastic market with great fundamentals. Plus you're getting the home at 3 to 5% below FMV. You know the house inside and out aren't going to get hit by any surprises. On the flip side, you're going to have to ask yourself if you have any attractive alternates in which to invest your money and, preferably, are you willing to live in the in the new investment (i.e. house hack a multi-family property) or significant downgrade your standard of living accommodation. The property you describe sounds beautiful and certain is a trophy home. Most new investors don't live in such glamorous surroundings because they can't afford to do so and invest in real estate at the same time. Hope this helps.

David - I really appreciate you getting back with me and for your insights. I certainly didn't mean to come across like I was bragging in the above post; the DC area is honestly so expensive that $500k doesn't buy you all that much house in too many places. This home is nice, for sure, but it's definitely a somewhat dated, 1977 split-level that would be extremely pedestrian in most markets. When we moved to this area a few years ago, we looked at a 10-year-old townhome a few miles away that was $200 more a month than we're currently paying. Sat right on a major 6 lane road, tons of traffic, no yard to speak of, etc. People will literally pay more to take care of less (newer, more "luxurious").


We would definitely be buying this home to live in - what did you mean by "house hack a multi-family property"? We have considered the possibility of revenue generation through renting the home on AirBnB during a particular week of the year that draws tons of people and rentals go through the roof. Apparently, we could get something like $500+/night for the home for that week. And there's always the possibility of renting out the downstairs bedroom to a trusted individual but that's probably down the road for us because of our stage of life. 

The 3-5% FMV discount is normally super attractive but I'm worried that because of the incredibly high property values right now, we may be in for a correction in the next few years, wiping that discount out (at least in the short run). Part of me wonders if it would be better to rent the property another year, see what the market does, and then approach the owner again. He has made it clear that he isn't planning on selling it out from under us and we can rent as long as we'd like, though he is motivated to sell to us as soon as possible because he's moving into a new home well outside of this area and won't be having reason to regularly come back here to check on it, etc. 

Originally posted by @Andrew S. :

David - I really appreciate you getting back with me and for your insights. I certainly didn't mean to come across like I was bragging in the above post; the DC area is honestly so expensive that $500k doesn't buy you all that much house in too many places. This home is nice, for sure, but it's definitely a somewhat dated, 1977 split-level that would be extremely pedestrian in most markets. When we moved to this area a few years ago, we looked at a 10-year-old townhome a few miles away that was $200 more a month than we're currently paying. Sat right on a major 6 lane road, tons of traffic, no yard to speak of, etc. People will literally pay more to take care of less (newer, more "luxurious").

You just described me there. I pay more to live in a high end condo so I dont have to take care of a yard. I hated taking care of a yard.


We would definitely be buying this home to live in - what did you mean by "house hack a multi-family property"? 

Multifamilies are incredibly rare in the entire region here. Buying one is incredibly difficult.  I sell more multifamilies than any other agent in the metro area, so I know how competitive that market is.

 
The 3-5% FMV discount is normally super attractive but I'm worried that because of the incredibly high property values right now, we may be in for a correction in the next few years, wiping that discount out (at least in the short run).

Prices in the metro area have gone down twice since World War 2.  Once during the early 90s recession by a few grand, then the housing collapse from a decade ago.  The largest price declines during the housing collapse were in PG County.  Some neighborhoods of DC actually went up in value during the housing collapse including Shaw, Petworth, Brightwood, Trinidad.

A much more likely scenario than a market correction is prices continue to appreciate, and interest rates continue to rise. So depending on what neighborhood this property is in...in a year you will likely pay more for it and have a higher interest rate.

Rusell - really appreciate your note. Hope you know I wasn't speaking poorly of townhome occupants - just highlighting the very odd nature of the DC market vs. the other more traditional markets we've lived in. 

The data on home prices in the area is very interesting - I didn't know that. We bought our first home during the housing collapse in....PG County! House was sitting vacant for over a year, had some surface mold in the basement that scared everyone away, and we swooped in and bought the only thing we could afford at the time. Prices, as you know, came back shortly after that and seem to have gotten back to (or are above) pre-crisis prices. 

And interesting caution on the appreciation and interest rates. Out of curiosity, what are the low down-payment loan options available right now? I know those offerings change all the time - can you still do a 5% down and get under 5% interest?

Originally posted by @Andrew S. :

Rusell - really appreciate your note. Hope you know I wasn't speaking poorly of townhome occupants - 

Not at all. I was just illustrating, people want different things. You want a yard...I hate yards.

 Prices, as you know, came back shortly after that and seem to have gotten back to (or are above) pre-crisis prices. 

Prices in PG are still below peak....but part of that might be condo developments.  Influx of a lot more units at lower prices drags the median down, even if prices are actually rising.

And interesting caution on the appreciation and interest rates. Out of curiosity, what are the low down-payment loan options available right now? I know those offerings change all the time - can you still do a 5% down and get under 5% interest?

You can do as little as 3% down with a Fannie Mae Home ready loan. With good credit and a low DTI, youd probably get about a 4.75% or so right now. (Literally, rates are changing at all times). If you do decide to purchase, you should reach out to @Upen Patel . He is a loan officer in the area who is really good.

Originally posted by @Andrew S. :

Thanks Russell - any recommendations for an appraiser in the area? And I'll reach out to Upen; really appreciate that connection.

 Bank orders the appraisal. Fsbos typically have a hars time appraising regardless of price, so expect a low appraisal and have a plan to deal with it 

It does not sound like a discount. Order an appraisal and haggle for an agreed price. You can look elsewhere and possibly get a better home for less.


Originally posted by @Sam Shueh :

It does not sound like a discount. Order an appraisal and haggle for an agreed price. You can look elsewhere and possibly get a better home for less.

 And compete against the 20 other offers every house gets