Is this a good deal as first time homebuyers? Any advice?

Question

Hello everyone on BP.

We are seeking our first real estate investment. It is a two family home that is owned by the cities Housing Authority. It is a two family duplex with three bedrooms one, bath in each apartment. Property record show that the city had it appraised in 2019 at 458K, the asking price as of right now is 599K. It is in a C class neighborhood.

Is this a good deal?Has anyone had experience buying property from the city? Any advice or tips would be very helpful.￼￼￼￼ thanks in advance.

Jaron Walling · Answer

@Petya Toncheva In my market the city sells distressed properties just like that for $15K. Fun facts.

What's the property condition? What are the numbers showing you? Any value add with rehab? What's your exit strategy for the property?

These questions will help steer you in the right direction and away from a terrible deal.

Petya Toncheva · Answer

@Jaron Walling

Thanks for the tips!

Account Closed · Answer

Just to let you know my own experience:  I drove by a property that was for sale for nearly 2 years - raw land, about 2 acres in WA state where I was living.  I asked people why nobody had purchased that property, and was told that the reason was because the owner was a jerk.  Trust me, they used much harsher terms :-)  He was known for being really litigious.  He also was known for buying property, then clear cutting the trees for profit, then selling the land.

The 2 acre parcel for sale by him was right on a main highway that everyone had to travel to get to and from the small towns to the large cities.  It had nearly 600 feet of frontage on that highway.  Easy access to utilities, (electricity and cable).

I had studied real estate and contracts, and thought - who cares if the owner is a jerk, if the contract is good.  So, I negotiated a deal with him to buy it.

He tried to be a jerk over me cutting down trees he left along the 600 feet of road frontage, trying to stop me from cutting down the trees, but I was paying attention when I signed the contract - it did not have a timber clause which would have prevented me from selling the trees until the owner/seller contract was paid off.  He started saying he'd sue, while he stopped the logging crew, but I (after first trying crying to get him to be nice to me) reminded him there was no timber clause in our contract - and - that I was going to use the money from selling the trees to put in a well, and if I defaulted on the loan, the property would be worth a lot more with a well on it than with the trees still on it.

He ended up leaving me alone, I put in the well, the trees that were cut down gave the lot a lot more sunlight which was great, and I sold it at a sweet profit to the guy who put in the septic system for me.  He owned a rafting business just down the road, and wanted his own home to be just up the road from his business.

Anyway, lesson being that if you have a good contract, it doesn't matter if the seller is a jerk.  No need to poke the bear, but if you have a solid contract that his/her lawyer will look at and tell them they'll lose if they fight you - then, you should be fine.

Account Closed · Answer

When you buy a property that has no strings attached, then you own that property.  So, if that's the case here, where you would own the property free and clear, then it doesn't matter who the seller is.

Then, just analyze whether or not the price is a good one.  Just make sure you'd own it free and clear, normally called "fee simple."  Then, the fact that the city used to own it doesn't matter at all.

Petya Toncheva · Answer

@Sue K.

Great story!!! Wow sounds like it worked out great in the end although must’ve been frustrating dealing with a jerk like that. Thanks for sharing.

Petya Toncheva · Answer

Ow wow! What a story. That is a great lesson.

Thanks!

Petya Toncheva · Answer

@Sue K.

Thank Sue, your response calmed my nerves a bit. I shouldn’t care who owns the property as long as it’s a good deal. 👍🏼

Petya Toncheva · Answer

Thanks for the tips. To answer your questions, the property is not in distress, its actually turnkey. This is what makes me wonder.

We plan to live in one unit and rent the other without any renovations, since the unit that we plan to rent out already has a renovated kitchen. We could force appreciation if we choose to update the current bathrooms and appliances (i.e stove, frig).

It seems like a decent property, we ran the numbers and come up with a couple hundred dollars positive cash flow. I guess my question is why arent there any tenants in it and why are there no other offers on the place?

Mark H. Porter · Answer

Yeah, Petya, it’s much more complicated.  Rent roll, all expenses, any $$ needed to make it safe or max the rents?

Is this a good deal as first time homebuyers? Any advice?

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