Ever ok to pay market value for a property?

Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes

These numbers are hypothetical but not too far off from what I see in the midwest. Do successful investors ever pay market value if the numbers still work for them in rare instances (and it was a buy and hold SFR)?

Market Value: $50,000

Sale Price: $50,000

Neighborhood: C-Class

Appreciation: Very little

Closing Costs/Registration: $2,000 (est.)

Taxes/Insurance: $100/mo.

Rent: $995.00 (no rehab needed/already rented)

25% allowance for capex/repairs/maintenance: $250/mo.

MONTHLY EXPENSES: ($100)+($250)=$350.00

MONTHLY CASH FLOW: $645.00

CoC %: $7,740/$52,000=14.88%

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Frank Wong

Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes

Paying market value is perfectly fine for investors. That's the first step, am I buying a property at market value and not overpaying? If all the rental numbers make sense then go for it. There is too much emphasis in trying to BRRRR and BRRRR and get these under-market deals. Sometimes it's just good to get the property start collecting rent and building your portfolio. Some people don't have the time search and search and wait they are too busy focusing on something more important which is making more money. I would add that I would only pay market value if I was buying a B area and up.

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Darius Kellar
Real Estate Coach · Member since 2018 · 245 posts · 216 votes
7y
@Account Closed
I bought a condo as an investment where the value was really close to the purchase price which was 52K. My reasoning for the purchase was not only to rent it but I knew that the 100 unit complex was the cheapest in the location with limited supply and a high demand. To support my purchase more, the association directly to the side of it were selling in the 100K+ range. So it was worth a try.
Fast forward to just 5 months in after I purchase the Condo unit the association approved all 100 units for FHA financing. FHA will allow buyers to buy the units with just 3% down. As before for the last 20 years that was not possible here, only conventional mortgages with 20% down were allowed. Now going forward I'm expecting the values will rise considering they are easier to buy.
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Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
Or is it ever ok to pay above market value if the cash flow is still pretty solid?
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y
Look at the numbers and go from there. If it is $50K and cash flows $645, the numbers look good.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
personal choice most rentals are bought at or above market.. especially if they are out of state investors.
5 to 8 years ago the vendors I funded who sold turnkey would advertise instant equity etc.. and that was generally true vis a vi a rate and term refi.. I questions the instant equity because at its base.. the true value is willing buyer willing seller with everything being equal..
however based on your numbers above folks would be jumping at those.. as long as they are not ghetto war zone areas and rents can be reliably collected..
In my day to day world of building new construction we often have to pay a little over market for lots to get them with competition being what it is.. For rental purposes though I think most just have to figure out what they are willing to do vis a vi risk / reward.. also in your numbers above there is no PM.. so for mom and pop self manage that's what I would consider pretty attractive for non appreciating or historic non appreciation markets..
At that point it becomes scale to make those types of properties work you need the ability to buy a lot of them to get any real appreciable income that is disposable.. OR like BP folks want IE retire on your rentals..
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Frank Geiger
Rental Property Investor · NC · Member since 2018 · 776 posts · 776 votes
7y
I imagine this could work if you held it long term. You would still get loan pay down + cash flow. You’d lose a year or two of cash flow to offset the cost. Real question is what’s the opportunity cost? Is this an area full of 50k properties or is the market median a bit higher?
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
7y
If it is good location, I recommend people to buy at a price they feel comfortable with. If you think it is a good deal so are other investors. People who think they can get great deals low ball offers often get tired and frustrated.
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Kris L.
San Antonio, TX · Member since 2019 · 930 posts · 836 votes
7y
Is this property in a tax free zone? Do you not need to pay insurance, or are those things included in the 250?
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Frank Wong
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y
Paying market value is perfectly fine for investors. That's the first step, am I buying a property at market value and not overpaying? If all the rental numbers make sense then go for it. There is too much emphasis in trying to BRRRR and BRRRR and get these under-market deals. Sometimes it's just good to get the property start collecting rent and building your portfolio. Some people don't have the time search and search and wait they are too busy focusing on something more important which is making more money. I would add that I would only pay market value if I was buying a B area and up.
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
7y
Originally posted by @Account Closed:

These numbers are hypothetical but not too far off from what I see in the midwest. Do successful investors ever pay market value if the numbers still work for them in rare instances (and it was a buy and hold SFR)?
Market Value: $50,000
Sale Price: $50,000
Neighborhood: C-Class
Appreciation: Very little
Closing Costs/Registration: $2,000 (est.)
Taxes/Insurance: $100/mo.
Rent: $995.00 (no rehab needed/already rented)
25% allowance for capex/repairs/maintenance: $250/mo.
MONTHLY EXPENSES: ($100)+($250)=$350.00
MONTHLY CASH FLOW: $645.00
CoC %: $7,740/$52,000=14.88%
I would say 99% of properties ever bought & sold are "at market value"
1 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
I'd say yes if there is a specific reason.
I have multiple properties where I would pay market value easily to also own the adjacent property. Then I could adjust lot lines, condo convert, repurpose, etc More than market value even.
In general, no. I am an investor and need value at the buy. What's special about this market value property vs the thousands of others also available on the MLS?
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OP
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Kris L.
PITI in that example was $350
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Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
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@Frank Wong
This is exactly it for me Frank. I'm a newbie investor with a FT day job so my time is very valuable. My feeling is, if I can get CoC of 75% and cash flow $200 per property minimum that will keep the ball rolling for me per se. My goal is 30 (rehabbed) properties by EOY. At that point, I feel I'll have enough cash flow to get back into personally doing a couple more BRRRR projects.
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Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Steve Vaughan
Cash flow. Ease of purchase. CoC return. Nicer rehabbed properties. Overall less time I'll be investing in them.
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Jon K.
Rental Property Investor · Perry Hall, MD · Member since 2016 · 586 posts · 598 votes
7y
@Account Closed What's your definition of a successful investor? 14.88% for a turnkey property is pretty solid to me. I paid retail for a property about five years ago and it has done nothing but print money for me since I bought it. While I wasn't counting on it it's also appreciated nicely since I purchased it so while I didn't get the instant equity I would have in a BRRRR I did get it in a relatively short time. There was more than enough room in the numbers to take a 15 year loan on it as well while still getting solid cash flow. So after 5ish years I have over 50% equity based on current estimated value. If I had BRRRR'ed with the same money I could have bought additional properties I know but free time was, and is, a factor and I can always refi it out if I choose to.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
Originally posted by @Account Closed:

@Steve Vaughan
Cash flow. Ease of purchase. CoC return. Nicer rehabbed properties. Overall less time I'll be investing in them.
In a strong cashflow market, I say go for it. There is definitely a cost of time and effort scrounging for deals to save a few grand.
Some of us are in much tougher markets and need instant equity just to make it work. Transaction costs alone run in the $20k range for me buying a median home. I need 15-20% equity on a conventional deal just to justify costs and effort.
Buy all you can that pencil in a market you know welI. I did that 16 years ago thankfully. Cheers!
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Marc Winter
Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
7y
My 2 cents: I would happily pay way over market value IF the seller gave me great terms. Price or terms. Pick one.
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Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Jon K.
"What's your definition of a successful investor?"
That is such a great question and you should honestly post as a seperate discussion posing it!
That said, to me my definition is to:
1. Pay basic living expenses
2. Allow me to still grow my RE portfolio to increaee my net worth and cash flow.
3. Teach others and pay it forward
To paraphrase Rich Dad Poor Dad, "Wealth is the number of days you can survive forward if you lost your job today."
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George Smith
Investor · Latham, NY · Member since 2014 · 217 posts · 65 votes
7y
Does it cash flow? Is it in an appreciating market?
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Kris L.
San Antonio, TX · Member since 2019 · 930 posts · 836 votes
7y
Apologies CJ, must have missed your line about the taxes.
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Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
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@George Smith
They would cash flow. Probably no appreciation
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Kody Foster
Longview, TX · Member since 2017 · 26 posts · 17 votes
7y
@CJ M.
CJ, a few of my properties are almost identical to this. But I bought them for cheaper than market value. Don’t give market value unless the seller is die hard. 99% of my deals have gone down anywhere from 5K -25k in price on deals just like this. I don’t know your market or your negotiating style, but imagine if you do get the property for less money and it cash flows better? Win win in my situation. There is nothing wrong with offering lower than market value( Who is telling you this is market value?). A lot of members of Bigger pockets seems to have “standard” rules they recommend and push from a lot of post I’ve seen, but almost all of them don’t apply to my area or deals. So if you’re happy with giving “market value” which could be cheaper or higher than you think, then go for it.
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