Am I too nervous about my first deal or being smart?
I have been working with a realtor for 6 months with multiple offers, one accepted but I didn’t have the resources for such a big rehab so had to walk away
Currently have opportunity for a 2/2 duplex that is listed for 270 and 1100 sq feet per unit My realtor suggested offering 290. Rents for the current tenant is 650 but the market in this neighborhood are around 1000
I’m planning to have this first rental be a house hack with my family of 5...with possibility of using the brrr method but I’m worried because 290 will be the most expensive home in the neighborhood there will be no way for more equity to go higher within 2 years any suggestions?
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
7y
@Nathan Marden a common issue these days. As long as you have an appraisal contingency in the offer, you bank will not let you overpay. I am writing more and more offers in Milwaukee now where the seller is countering out the appraisal contingency from the offer. If the appraisal comes in short, the buyer will have to come up with the cash to close the gap, potentially a tens of thousands. And we all have seen redicolous appraisals. I have seen that in CA for a while, but it's pretty new for us here.
On the other hand you have to be realistic. You can only buy the best deal possible in 2019. Sounds like you have been looking for a while, so you should have a pretty good feel for what is possible. One mistake a lot of nebies make is they buy a house that is 20k cheaper and will need 40k of upgrades and they think they can do it over time. They are pretty much lying to themsleves, because you still have to do it and now you have to pay cash instead of a 30 year mortgage. So, it may not be a bad deal, just because the price is high. Remember price is what you pay, value is what you receive - so if the condition is good, it might be worth it.
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
7y
@Nathan Marden a common issue these days. As long as you have an appraisal contingency in the offer, you bank will not let you overpay. I am writing more and more offers in Milwaukee now where the seller is countering out the appraisal contingency from the offer. If the appraisal comes in short, the buyer will have to come up with the cash to close the gap, potentially a tens of thousands. And we all have seen redicolous appraisals. I have seen that in CA for a while, but it's pretty new for us here.
On the other hand you have to be realistic. You can only buy the best deal possible in 2019. Sounds like you have been looking for a while, so you should have a pretty good feel for what is possible. One mistake a lot of nebies make is they buy a house that is 20k cheaper and will need 40k of upgrades and they think they can do it over time. They are pretty much lying to themsleves, because you still have to do it and now you have to pay cash instead of a 30 year mortgage. So, it may not be a bad deal, just because the price is high. Remember price is what you pay, value is what you receive - so if the condition is good, it might be worth it.
Property Manager · Philadelphia, PA · Member since 2015 · 515 posts · 196 votes
7y
I would be careful....marketers, outside of real estate, often use appraisers to study price anchoring. And it is shown how easy it is to sway an appraiser. So don't trust an appraisal contingency. I often feel that I greatly elevate my own appraisals and also for my clients.
This market in Utah is tight I keep putting offers out to lose them to all cash buyers when the numbers are better. There are properties with better numbers but are in very D neighborhoods that I can’t leave my wife and kids in. I admit I’m feeling annoyed at loosing offers so many times while renting
Rental Property Investor · Salt Lake City, UT · Member since 2016 · 27 posts · 24 votes
7y
@Nathan Marden
Where in Utah are you? 270 for a duplex or anything that big in Salt Lake is really good, but paying that price outside the Wasatch Front may still be paying too much.
Real Estate Agent · Lehi, UT · Member since 2016 · 136 posts · 91 votes
7y
@Nathan Marden I have house hacked 4 times now, just getting ready to sell the last one. You can make a ton of money if you do it right. Duplexes are priced based on rental income, so if you fix it up and raise the GOI then you should be able to sell it for more than you're buying it. However, if each side rents for $1,000 and you pay $290k that's a pretty low cap rate. Personally, I won't buy anything under a 6% cap unless it's in a really really good area. What's the area like? How much higher can you push rents? how much will you spend rehabbing?
Salt Lake City, UT · Member since 2018 · 219 posts · 182 votes
7y
@Nathan Marden I’m sorry it’s so hard right now. Don’t get discouraged. I offered $30,000 over ask price on a 4 plex and didn’t get it. I went into back up position and the agent put it back on the market without even contacting me. I was up against 10 offers again but ended up getting it this time. Multi units have a lot of competition right now but just keep at it and always go into back up position because often they fall through