Rental Property Investor · Ogden, UT · Member since 2020 · 14 posts · 3 votes
My wife and I currently own a town home that is 1400 square feet. It is in a great area and our mortgage on it is about $760 a month. We could easily rent it out for $1300 a month and collect cash flow. So my wife and I just found a home that we want to turn into a duplex. It is 1800 square feet and in a quiet neighborhood. It was recently renovated and is really pretty. It already has its own entrance into the basement and has an area for the laundry, kitchenette and bathroom. We just need to instal all of it. The asking price for this duplex is $259,000. They already have an offer on the house for over market value. Our realtor suggested that if we want the house that we offer $280,000 because everyone is buying for about $15,000 -$20,000 over market. The problem is, my wife and I don't have enough savings to have a down payment. So, what we are doing is we are getting an equity line of credit on our current town home that we own. By doing this we will have enough of a down payment. If we do this, we could rent out the other half of the new duplex we are buying for another $1100 easy. So, in my eyes the numbers work. But Im new at this and I am guessing I am missing something.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y
Your could be fatal mistake would be buying the property because you want the "property". Home owners buy properties, investors buy "deals". Base your offer on what would make this a "deal", not what would get you the property. If all the other offers are 10-15% over AP, then let them be fools...don't follow them.
...amd don't rationalize anything that makes this a deal. Either it is, or it isn't...and it sounds like it isn't.
Just because houses are selling $15-20K over asking, doesn't mean you should do it. Are you doing 5 or 20% down? If you pull money out of your home, how long will it take you to repay and what will the payments be? If you offer $280K, you need $14K (5%) or $56K (20%) PLUS closing costs. You will also need money to convert it into a duplex (I'm assuming you checked with the city to see if you can add a legal suite).
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
5y
@Kyle Neville I just want to offer some advice on this topic about paying over asking price. We just went through and will continue to go through a COVID-19 shock wave that caused a lot of financial downfall. Millions of people have lost money due to loss of work and business's shutting down. You also have millions of people who cannot pay for their mortgage payment and are on a forbearance agreement that is ending soon. With all of this in mind you have to take in consideration that millions of people are about to lose their home(s).
This will trigger a chain of market events that might offer you a window to save money. If you were to wait it out until next year and wait for a large number of these homes to hit the REO or FSBO market you will more than likely find some great deals below market value! So maybe a little patience for now until the storm either starts or is over. Keep in mind with millions of people getting ready to lose their homes this will also have an effect on local real estate values. When you have a large number of foreclosures appraisers have to include them in their market analysis.
This can have a negative effect on values and paying more for a property may not be the best idea right now with certain forecasts... keep in mind there are a lot of investors feeling the pain if their renters cannot pay as well.... I do not want to stop you from making a decision to buy an investment property but just consider the current times and what opportunities may be ahead!
Investor · Fayetteville, NC · Member since 2020 · 12 posts · 8 votes
5y
@Kyle Neville I take it that you have enough for the down payment but not enough to do the conversion to a duplex. If it is as you say though, even with a HELOC you usually have to have the funds in an account for 60 days of seasoning for the banks to give the green light. @Jason Wray is definitely on to something. Everyone's paying a premium now because buyers are greedy. Remember Warren Buffet's quote: "When people are greedy be fearful. When people are fearful, be greedy". I think the next 18 months will present some amazing deals for all of us, we just need patience.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y
Your could be fatal mistake would be buying the property because you want the "property". Home owners buy properties, investors buy "deals". Base your offer on what would make this a "deal", not what would get you the property. If all the other offers are 10-15% over AP, then let them be fools...don't follow them.
...amd don't rationalize anything that makes this a deal. Either it is, or it isn't...and it sounds like it isn't.
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
5y
@Kyle Neville the asking price should be irrelevant to your analysis. They could have put it on low to encourage a bidding war they could not know what they have they could be divorcing and need a quick sale...whatever. But what is it worth to you?
Paying over the asking price could be a great play or put you in a deep hole, but so could paying under. Good luck!