I am new to the world of real estate purchasing and investing and am looking for advice on purchasing a bank-owned property. It is a two-unit apartment house listed at $79,900 and the bank is offering to finance the property as well as $30,000 in repair money. The repair money is accurate in what it needs to fix up to be rentable. The structure is very solid with updated wiring, windows, and water heaters. It will need a new heat system and roof which is included in the repair money. I am wondering how to figure out a good purchase price so it will be profitable to rent or sell. Any advice would be greatly appreciated.
@Cameron DePaola any REI deal you purchase should past the 1% rule smell test. If you purchase for 80K and have to dumpt 30K into the property then the property should rent for a minimum of $1,100 per month. Based on other rentals in the area can you get $1,100 per month? I'd start there. Also you need to find the ARV for the property based on comps. You always want to buy at as deep a discount as possible. Hope this helps. Good luck man!
The first place to start is Craigslist. Search for other rentals that are comparable in that area. That should give you a good idea of how much rent you can get.
Then just work out the expenses. Taxes should be public record (search you county assessor's site). Call an insurance guy and get a quote for insurance of a rental property. The loan payment should be pretty easy to figure out (run the purchase price through an amortization calculator). Then you will have PITI (payment, interest, taxes, insurance) add in 10% of rents for maintenance etc. and you have your expenses.
Subtract your expenses from your total rent and you have your cashflow.
If your happy with the amount of monthly cashflow, then you have a viable prospect.
I have compared it to rentals in the area and since it is a college town, I believe I can rent it easily enough for $900 per unit. Upstairs is a 2-3 Bedroom and downstairs is a 2 bedroom. I recently made an offer for $45,000 plus the $30,000 in repair financing, making a total of $75,000. The bank countered at $70,000 with $30,000 for repairs, for a total of $100,000. The property was last assessed (before needing major repairs) around $120,000.
@Cameron DePaola first of all welcome to Bigger Pockets, you have found a great place to get help with a project like this. Since it sounds like you are very new to this let me suggest a few great assets that are available to you for free, at the top of the this webpage there is a tab labeled "education," inside that is a tab labeled "guides," from there you should start with the "Ultimate Beginners Guide". Also to figure out if this property is profitable you will need to know the average rent that each unit could take in, or if you are looking to sell what fully rehabbed houses sell for in your area. After you figure out that if you are looking to hold this for a rental there are a ton of other things to consider as far as expenses are concerned. For example, taxes, insurance, property management, ect... the list goes on and on. Don't think for a second that I am discourage you from buying this but there is a large amount of information you need to educate yourself with before you jump into a project like this. Another thing to consider, and I speak from experience with bank-owned properties in colder climates. make sure you are very extensive with your inspection of the property, I have had frozen pipes in a couple bank owned properties, many times you will see a sign or notice that the property is winterized but you could still have broken pipes, sometime inside walls that you will not see until you get water turned back on. I feel like this is a topic I could talk about for hours because I have been in your shoes, but the biggest advice I can give you is education, education, education you can not know too much before you make that first purchase.
good luck and please let me know if I can help you more with this topic or answer any other questions you make have
@Cameron DePaola Hey welcome to BP, good to have you. I think you have got a good property in your sights, even at 100K all in, you will have a great rent to value ratio, I would come back with 90K all in and I bet they take it. You can't get too much of a better deal especially when they are providing the repair costs.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.