is "every house is a deal at a certain price" true?
Joe CapobiancoPro Member
Old Bridge, NJ · Member since 2013 · 80 posts · 11 votesin the latest podcast I've listened too and webinar i watched i remember hearing the quote that "every house is a deal at a certain price" and i have a few questions about this quote.
i'm not sure if i am overthinking thinking this or simply not understanding what "every house is a deal at a certain price" means. i'm thinking they're saying if i can buy a home below market value, fix it up, cashflow with rents at market rental rates then its a good deal but what is stuck in my pessimistic mind is. "what if nobody wants to rent the home?" whether its because of location or local school systems?
when i'm looking for potential buy and hold properties i'm looking at the surrounding homes that have recently sold, how close the house is to major highways or train stations, and local school systems.
am i over analyzing or should i go for a house in a C neighborhood if i can buy and rent at market rates and still cashflow?
i just question "if i have the rental, will the renters come?"
Seems Logan was more on point. :)
As to Joe's comment, guru folklore folks. No, dirt with some improvement on it isn't a "deal" at lower price or even if an owner paid you to take it (within reason, because no owner would really pay a huge premium to dump a place in reality, they just walk away).
I've turned down several free houses, even free isn't a bargain!
You buy distressed properties ate distressed prices, you don't ever buy below market value if that property and sale met the conditions necessary to arrive at a market value.
Land is generally an asset, we talk about it as an asset, but land can be a liability.
Go get that steal of a deal on that 65 year old shack that some poor slob might rent to stay dry.
You can face some unique problems as a slumlord, when your property doesn't fall within the mean rental market or in some aspects higher.
Besides the crime and economic issues, you're more likely to have compliance problems, no city government likes a slum area, have you heard of eminent domain?
When you get chased out and decide to update or improve a non-owner occupied property you'll find the building regs folks standing there. Oh, bad roof with 4 layers, asbestos insulation, wiring, flooring, exposed lead, tile sewer lines cracked, you have a liability! It can cost you much more to remove toxic items and waste than the land would ever be worth! Does your city require a crack house clean up as a chemical waste site?
Anyone recall the Toxic Waste responsibility laws that the banks went through in the 90's, like old gas tanks, oil tanks, chemical spill and disposable chemical areas?
Look up "Times Beach, Missouri" the whole town was closed, folks bought houses there and they all lost money.
So, you figure the house can be rented for something, you buy it cheap and it has a payoff of 8 years to meet your break even. The neighborhood is going down hill, crime is up, those you do rent to have a hard time paying, the place gets more damage, vacancy goes up, you get citations from the city, 3 years later you can't rent the place. You're stuck with a liability and this happens all over the country.
Besides the drastic stuff that can happen, new investors need to understand the maturity cycle of neighborhoods, new-expanding, to stable, down to mature, to stagnant, to declining to distressed.
In distressed areas, rents do not go up as fast as expenses, cash flow slows and expenses can increase. Stagnant areas can have the same issue, generally not as drastic or accelerated. Mature, stable areas are where you'll usually find the better deal but understand too that the clock is ticking on these areas so due diligence and an eye toward revitalization needs to checked out.
There is an aspect of all residential and commercial appraisals, the appraiser notes the expected economic life of that property in its current use, this can be less than your mortgage term, if it is, you and your lender have a problem.
And, yet again, learn the basics of real estate, function, utility, highest and best use, why land is valuable or not. The basic economics of small real estate investing. Good luck :)
@Joe Capobianco I do agree that there is a price that makes any house a deal. If you want to know if it will rent out quickly, call a real estate agent with a sign in a yard of the neighborhood you are looking at. Agents love talking to people so ask them all the questions you can. If you have access to the MLS, you can look up rentals in that area to know how much they go for and how fast they are rented. Don't be scared if DOM reaches 40 because the owner will list it as soon as the current tenant gives 30 day notice.
@Joe Cantanzriti, the point of saying "every house is a deal at a certain price" is that every house is worth SOMETHING, and if you can get it for LESS than that something, it's a "deal"! Because, you can then sell it for that something, minus the less-than-something, right? ie. Profit!
Meantime, you shouldn't be guessing about future renters, because you should already have sought the approval of your team (Property Manager and Contractor/s), before buying! Cheers...
I have seen houses in war zones that were so dilapidated that it would be better to tear them down.
Even the land in those neighborhoods was worth almost nothing since it was in the middle of the ghetto.
Houses like those are 100% worthless to me.
Exactly. Which is why you only obtain those as "deals" if the Seller PAYS you to take title!
Then, you "sell" it for whatever next-to-nothing price that STILL gets you: PROFIT! Cheers...
One man's SHACK is another man's CASTLE!! Don't get caught up in "Analysis Paralysis"!! If the numbers make sense, they make sense. Even in the worst location, in the worst condition, there's someone who will buy it or rent it if the numbers are right. Sure, it may be harder to move it, but you may be able to get a much better deal also.
There are certain areas where no price is a good deal if you don't want to deal with them. And ultimately, there are some houses that you couldn't give me - even though they were in decent areas.
Just too many issues. Bad layout that couldn't be easily fixed. Foundation issue. Drainage problems. Well and septic.
Its not that you couldn't make money if the gave you the house. I just wouldn't want to put in the kind of effort it would take to do a complete gut rehab on the thing and deal with all the contractors, permits, etc.
So no. It is not true that every house can be a deal at a certain price.
That being said. I went and looked at an older house that seemed all cut up. With no real family room. No kitchen space, no garage, un-level floor upstairs and really short ceilings. I walked out telling my realtor that you couldn't give me that house. Needless to say, friends of mine bought it and turned it into a great house. Cost a pretty penny to do it but they got it at a really good price too.
So sometimes what you think can't be turned around for any cost actually can if you're willing to expand your timeframe and budget on a deal and have some really good vision.
But those are the ones that you really want the big contingency cushions too. Those huge rehabs have tended to become my biggest money pit deals......
https://www.youtube.com/watch?v=FGKkqQDZaNs
Hahahaha. Nope. Maybe it's a "mid-west" thing but we get calls all the time on 40k houses needing 60k of work.
Seems Logan was more on point. :)
As to Joe's comment, guru folklore folks. No, dirt with some improvement on it isn't a "deal" at lower price or even if an owner paid you to take it (within reason, because no owner would really pay a huge premium to dump a place in reality, they just walk away).
I've turned down several free houses, even free isn't a bargain!
You buy distressed properties ate distressed prices, you don't ever buy below market value if that property and sale met the conditions necessary to arrive at a market value.
Land is generally an asset, we talk about it as an asset, but land can be a liability.
Go get that steal of a deal on that 65 year old shack that some poor slob might rent to stay dry.
You can face some unique problems as a slumlord, when your property doesn't fall within the mean rental market or in some aspects higher.
Besides the crime and economic issues, you're more likely to have compliance problems, no city government likes a slum area, have you heard of eminent domain?
When you get chased out and decide to update or improve a non-owner occupied property you'll find the building regs folks standing there. Oh, bad roof with 4 layers, asbestos insulation, wiring, flooring, exposed lead, tile sewer lines cracked, you have a liability! It can cost you much more to remove toxic items and waste than the land would ever be worth! Does your city require a crack house clean up as a chemical waste site?
Anyone recall the Toxic Waste responsibility laws that the banks went through in the 90's, like old gas tanks, oil tanks, chemical spill and disposable chemical areas?
Look up "Times Beach, Missouri" the whole town was closed, folks bought houses there and they all lost money.
So, you figure the house can be rented for something, you buy it cheap and it has a payoff of 8 years to meet your break even. The neighborhood is going down hill, crime is up, those you do rent to have a hard time paying, the place gets more damage, vacancy goes up, you get citations from the city, 3 years later you can't rent the place. You're stuck with a liability and this happens all over the country.
Besides the drastic stuff that can happen, new investors need to understand the maturity cycle of neighborhoods, new-expanding, to stable, down to mature, to stagnant, to declining to distressed.
In distressed areas, rents do not go up as fast as expenses, cash flow slows and expenses can increase. Stagnant areas can have the same issue, generally not as drastic or accelerated. Mature, stable areas are where you'll usually find the better deal but understand too that the clock is ticking on these areas so due diligence and an eye toward revitalization needs to checked out.
There is an aspect of all residential and commercial appraisals, the appraiser notes the expected economic life of that property in its current use, this can be less than your mortgage term, if it is, you and your lender have a problem.
And, yet again, learn the basics of real estate, function, utility, highest and best use, why land is valuable or not. The basic economics of small real estate investing. Good luck :)
@Jeremy Pakalka@Brent Coombs@Anthony Gayden@Jeff Filali@Mike H.@Bill Gulley@Ryan Dossey
thanks for the advice guys i really appreciate it. im looking at a 2 family home that doesn't need much work but i am concerned about the integrity of the home. being that the house is 100 years old it settled and you can feel little humps in the floor in 2 parts of the house (only downstairs though). at first this was a big turn off for me but after noticing this in multiple older homes and seeing my girlfriends sisters renting a home which actually bends towards the middle upstairs i'm starting to think its normal and shouldn't be a problem.
am i wrong for thinking this? multi family homes are hard to find around me without going into lower class dangerous areas and nearly impossible to find one that's less then 70 years old.
do you guys focus much on the foundation of the home? or as long as its structurally sound with no issues besides age you would go for it. i feel like i'm over analyzing these homes and straying away from things that are not as big as they are in my mind and getting caught up in analysis paralysis.
Yes Joe, I look at foundations carefully, the older the more careful I am. Age doesn't scare me, condition might.
"Little humps" doesn't tell me much, but my first guess is an issue with the subfloor and flooring where lumber can cup giving the surface a ripple effect.
Foundation issues cause larger areas of a floor to be uneven or sloping and you'll generally see cracks in walls, especially over doorways. A bad foundation is more likely to be noticed in the second story as a slight vertical movement is exaggerated the higher up it goes along an axis. If the second floor seems solid you may not have any foundation footprint issue.
Not going into a geology lesson, but the ground can rise and shift, peers on the interior of the footprint can move or sink causing many to think there are structural foundation problems, these can be an easy fix in old buildings.
A bigger issue with a 100 year building will be asbestos, lead pipes including the water main, tile drains, lead paint, mercury and wiring. If a structure looks square, level and plumb from a distance you'll probably have a good foundation, and don't be so afraid of rock unless it's sandstone.....
Have the building inspected!!! Remember the movie, "The Money Pit" :)
@Bill Gulley wow thank you very much, the perimeter of he house is all brick so I'm glad you added that in there with the sandstone. i have looked into the electric, which is all bx and Romex with two new circuit breaker panels. Both sides recently remodeled. (I do not know what surprises lurk behind the Sheetrock)
The flooring was done before putting up for sale, if he inspector doesn't see any immediate problems with the flooring where its a hump would you recommend ripping up the floor anyway? I think it is just laminate flooring anyway
this house also has been that seem to be trees literally cut down the middle and placed As support beams. I don't know how to explain it but I do have a picture from my phone. Just wondering if anyone else ever seen this before. My using my phone to post this and it's not letting me Post my picture. I can email it to anyone if they would like to see
@Bill Gulley wow thank you very much, the perimeter of he house is all brick so I'm glad you added that in there with the sandstone. i have looked into the electric, which is all bx and Romex with two new circuit breaker panels. Both sides recently remodeled. (I do not know what surprises lurk behind the Sheetrock)
The flooring was done before putting up for sale, if he inspector doesn't see any immediate problems with the flooring where its a hump would you recommend ripping up the floor anyway? I think it is just laminate flooring anyway
You went from small bumps to a hump, a hump may be a peer, need to get under the house and see it, ask the inspector to check it specifically and no you don't need to rip the floor up.....at least yet.
A building 100 years old will have "plaster and lath" unless it was removed, often they will cover it with sheetrock, you can check at an electrical box opening and see if they used deeper (rehab) boxes or cut the old stuff out.
Also, sounds like you need to study basic home construction, identifying and naming the parts, understand methods used and material common for the period of any subject property. "Humps" don't just appear or exist or is descriptive to communicate building issues, you'll need to know what is most likely a problem and how to cure it. Good luck :)