It can't be a good deal, or someone would have already bought it.

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It can't be a good deal, or someone would have already bought it.

Timothy Lon
Pittsburgh, PA · Member since 2016 · 16 posts · 2 votes

Hello All,

Brand new member, second post ever.  I am currently researching prospective MFHs for my first rental property with the intent to buy soon (my houses closes the 22nd, which is going to be used to help with the 25% down).

I have a question for the more experienced investors on this site, so basically, everyone.

I tend to find a prospective property, research the areas and statistics, and if it seems potentially profitable I run more detailed analytics (including the calculator on here).

The problem is this:

The best properties with the best cash flow, profit margin, ROIs, etc...all seem to be properties that have been sitting 200+ days on the market, sometimes much more.

My first train of thought is if it was really this good, someone would have bought it up months ago, right?

Besides the obvious (my numbers are off, i.e. estimated rent value) is it possible, or more important, even probable properties that have been sitting on the MLS for 6+ months or 1+ years are actually good, positive cash flowing investments?

Do any of the veterans on here immediately rule out a property based solely on it exceeding a certain time frame on the market?

And of course, if it is possible...why haven't these MLS lifer-type properties been snatched up yet?

Thanks for the future reply guys.

-Tim

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JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
10y

There is no good answer other than running your own numbers. I bought a SFH last year that was a foreclosure and sat for almost a year. I could find nothing wrong with the house other than the atrocious smell of cat/dog urine, and staining of the hardwood floors. I gave the bank a low offer, they took it. A couple of grand later I had it cleaned up, and rented and occupied one month after closing. It had been a great cash producer, almost a 20% annual return. So you never know what other people are thinking, so you have to know and trust your own research.

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  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    10y

    Tim:

    You are right to be suspicious.  If a property has been listed for the better part of a year (or longer) and the numbers (as provided by the Vendor's agent) look good, then there is a disconnect as it is not priced properly:

    • perhaps the Vendor's numbers are not accurate (highly probable).  You can verify market rent and vacancy rates for the area and many operating costs (property tax, water & sewer, electrical, gas, etc) independently of the values supplied by the Vendor;
    • the property has lots of deferred maintenance.  When you factor in the costs of addressing these needed/pending repairs, the ask price is simply too high;
    • there is something scary (at lease to the uninitiated) about the property (asbestos, USTs, UFFI, Al wiring, etc);
    • the building is not in a great neighbourhood (this would have been obvious immediately if you are shopping local, a little harder to determine when you are looking from away); or
    • there are other encumbrances on the property.

    These are just a few of the things to seek out which may explain the long un-loved status of a property listing.

    2Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y

    @Timothy Lon, if you manage to tick off all those points raised by Roy and yourself, another possibility is that there are not many buy-to-hold investors in your LOCAL area who would consider non-turnkey properties. You may well have found a niche for yourself! Stick to YOUR numbers...

    1Reply
  • Jake Thomas
    Residential Real Estate Agent · Grand Rapids, MI · Member since 2013 · 803 posts · 689 votes
    10y

    In my market if a house is sitting longer than 3 weeks it is severely overpriced. It may have deferred maintenance like @Roy N. said, a terrible layout or in a very bad location but its still overpriced if its not moving. Sometimes you have to go see the houses for yourself before you can do a good analysis. When I was new we were actively going to and looking at 25+ properties before we made offers since they looked good on paper but once you got there your $5K rehab budget turned into $25K and killed the chances of it being a deal. Stay disciplined and keep looking you will find a good property. 

    0Reply
  • Timothy Lon
    OP
    Pittsburgh, PA · Member since 2016 · 16 posts · 2 votes
    10y

    Good points from everyone, especially @Roy N., thank you.

    I sometimes see the phrase "A/B/C/D area" on here to describe if the area something more pristine/upper class, middle-class typical, or a subpar neighborhood.

    I've done research into these areas, and while not horrible "D" areas of the Greater Pittsburgh Area, some of these areas would probably be described as C, or maybe C-.

    I'm hoping that the main issue with these properties are they are in subpar but not horrible neighborhood.

    As most have said here, the best option is to get some feet on the ground and go see.  For all I know, the street/area that makes the area subpar overall might be right down the road, or it might be a nice street IF you don't notice the two drug dens across the road.

    Thank you guys.

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y

    There is no good answer other than running your own numbers. I bought a SFH last year that was a foreclosure and sat for almost a year. I could find nothing wrong with the house other than the atrocious smell of cat/dog urine, and staining of the hardwood floors. I gave the bank a low offer, they took it. A couple of grand later I had it cleaned up, and rented and occupied one month after closing. It had been a great cash producer, almost a 20% annual return. So you never know what other people are thinking, so you have to know and trust your own research.

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    3Reply
  • Dominic Lucarelli
    Irwin, PA · Member since 2015 · 152 posts · 52 votes
    10y

    I've got an offer in on a triplex right now that is severely overpriced due to deferred maintenance. The asking price is almost double what is worth. But the owner isn't accepting anything under her magic number. So everyday it sits on the MLS, the stronger my offer becomes... Be patient. Don't chase. The market (aka YOU) dictate price. A property is only worth what someone is willing to pay. If your offer is the only one received after 1+year, then... :

    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    Good thinking, @Timothy Lon!  My personal opinion is that purchasing a 2-4 unit property (especially a 4-unit property) using FHA financing is one of the best ways to get started investing in real estate. If you do this, and you do it right, you will be leaps and bounds ahead of your peers financially. Millennials have basically given themselves two options in terms of housing: renting, which means kicking hundreds and in some places thousands of dollars out the door every month, or buying a nice 3-bed/2-bath that they can barely afford and drains their cash flow. But not you. You will be making money every month off of your housing situation.

    And in the long run, even if you do nothing else in real estate, you will have succeeded by getting into a fourplex as a young person with only 3.5% down. In 30 years when the mortgage is paid off, you will be sitting on a million-dollar asset that cash flows thousands of dollars per month at relatively little cost out-of-pocket when you were 20- or 30-something. If that’s not incentive enough for you to get started today, then I don’t know what is.

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  • Timothy Lon
    OP
    Pittsburgh, PA · Member since 2016 · 16 posts · 2 votes
    10y

    @Logan Allec

    Those are some good points.

    I have looked into the FHA route, due to the 3.5% down.

    I'm lucky enough to not be overly limited by finances, regardless of being in my mid-20's.  So, I'm still looking at conventional loans as well.  Basically, simply trying to find the best deal.

    What's frustrating, although I could take it as a good sign, is while I've been waiting for my house sale to close the last month, 4 of the 10 or so properties I was going to target and potentially offer have already been bought off the market. These includes some of the ones that were getting into that 4-6 month + on the MLS range.

    Frustrating because they were seemed like good opportunities, but nice to know my analytics and assumptions were probably right (they were profitable).

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    10y

    @Timothy Lon Are you getting out in the field and driving by these properties that have been on the market long?  In most cases, just a simple drive by will reveal why a property has sat so long. 

    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    @Timothy Lon, folks differ on this, but if you have a good income and can weather the storms, you want to use leverage extensively at a young age. Why not put a little bit of your cash down on an FHA fourplex and still have all of your remaining cash to put toward other deals?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Timothy Lon   I have a couple thoughts.

    My first one would be long days on market indicate a poor neighborhood. and the numbers need to be high to sucker someone into buying a property that would be very difficult to run.

    Sellers reading the paper's and overpricing to start with.. many times though this back fires as price reductions etc.. and property sells for less than it would have had it been priced correctly in the first place.

    Unmotivated seller.. just throw it out there is some sucker wants to pay this amount then fine.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    10y

    There may be very good reasons the property hasn't sold after a long time on market, or it may just be because most buyers have no vision.  I'm amazed at how little they will look past!  Fear words like mold & pests, or smells will have most running for the hills.  Sometimes just paint and a good cleaning are all that are needed. Have the vision!

    As you drive neighborhoods and view many properties, you will get a feel for underlying themes on a lot of these sitters and maybe find a niche for yourself.   Have a little vision, but watch out for bad locations and functional obsolescence.  Nothing you can improve there! 

    2Reply
  • Lee Badragan
    Real Estate Investor · Harwood Heights, IL · Member since 2014 · 17 posts · 12 votes
    10y

    My first (and only, so far) flip I did was on a house that sat on the market for months. It was "scary" because of a village violation where the builder in the 50's didn't build the line to the sewer properly and it basically needed a new sewer line.

    I simply built the 10k sewer repair cost into the math and it was still a bargain, so I bought it. Made a huge profit. 

    Due diligence is key, but don't ignore a property just because it sat on the market long. 

    1Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    @Timothy Lon, check this post out.  My favorite part is this line: "This was a Fannie Mae REO that had been listed since 2011".

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  • Timothy Lon
    OP
    Pittsburgh, PA · Member since 2016 · 16 posts · 2 votes
    10y

    @Michael Noto, I did manage to drive by 4 properties recently (a lot of 12 hour shifts and afternoons/midnights are making it difficult).

    Two properties didn't help their case...two properties (based on the outside appearance with the inside pictures on the listing) solidified their potential, to me at least.

    Go figure: the two properties that helped their cause are already off the market.  One had sat for around 140-180 days, and the other had been listed for around 270-290 days if I remember correctly.

    @Logan Allec well said.  It seems that other investors have the same mentality due to a few of the properties recently getting picked off the market.

    0Reply
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    10y

    @Timothy Lon "to be honest, the biggest concern about the FHA loan is my career and commute. I've had no luck to this point finding properties that fit this criteria that are within a 45-60 minute commute to work."

    That's definitely a valid point.  In order to make it work for me, my commute from the fourplex in suburb of Los Angeles all the way to Downtown LA is 2 hours one-way door-to-door.  But thankfully, about 3/4 of this time is spent on the train, where I can work/sleep/read/blog/etc.  Public transportation makes it bearable.

    "Also, I hear the requirement (in my limited research) is that it can be used on a duplex or other MFH (up to 4 unit) but requires it to be my primary residence for 2 years."

    The rule is 1 year, which really isn't that long at all considering that you're getting into 4 units with only 3.5% down so that you can put the rest of your liquid cash into 4 or 8 or whatever more units.  Would you rather have X units for $Y or X + 4 units for $Y + another measly $10-$20k?  You're young, and there's no better time to do this than now.

    "What are the consequences (penalties, fees, etc) if I happened to use this FHA loan to get a tri/quad I lived in, and 4-12 months later I moved?"

    If you were caught moving before the year is up, there could potentially be life-changing penalties as this is considered mortgage fraud by the FBI with penalties punishable by up to 30 years in federal prison or $1,000,000 fine, or both.  Now, if you get caught, will you realistically be slapped that hard?  Probably not.  But there will be significant consequences nevertheless, particularly with respect to your ability to obtain mortgages in the future.

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  • Timothy Lon
    OP
    Pittsburgh, PA · Member since 2016 · 16 posts · 2 votes
    10y

    Well, that's worse than the federal warning at the beginning of an old VHS.  Good to know.

    I will have to continue looking, 1 year vs. 2 years is a big difference.

    I'm currently on month 4 of a one year lease at my apartment complex (was the only real option to sell the house, living at the resident while on the market was not an option for a number of reasons.)

    I'll make sure to stash away $10-$20k and not touch in case this type of property does go on the market in 6-8 months.

    There are a few...but they are in areas that aren't bad enough for me to be against purchasing and having a PM company manage for me, but not nice enough to be willing to live in the neighborhood myself.

    Thanks for the great info.

    0Reply
  • Steve Bracero
    Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
    10y

    if a property is on the market that long it could be a bad deal. Or it could be in a bad area. You would not know until you see the property or run the numbers. I still look at properties that have been on the market for 180+ days and give them a look- 

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