Help with rental/value price

39 Replies

First off, I am new to the forum but have learned so much. 

Some info:

I will be buying a short sale for $110,000 in need of renovation (estimate around $70k updating everything including electrical/plumbing)  that is in a very sought after neighborhood. However, the neighborhood has so much different types of homes that it is hard to pinpoint comps. The closest I have seen is in the $180,000 range (taken into account # of beds/bath and year), but the house I am looking into is 400 sq ft bigger, the yard is bigger, and it has privacy fence and bushes. The realtor is also having trouble trying to pinpoint potential rental and value due to the fact that $180,000 has 3 bed rooms, but if we try to match the sq footage with other homes, its at $220,000 with 4 bedrooms (the house I am looking at is 3 bed).

On top of that, there are currently no rental available in the neighborhood (very low turnover rate) with the exception of the newer houses but smaller sq footage which are going for $1 per sq ft. All the other homes that is the same year +/- 5 years and sq ft are not popping up for rent for the past 3 months.

With this type of mix neighborhood, how would you price the value and rental property? 

oh forgot, the house I am looking at is built in 1970s while the newer homes with high turn over rate are built in the 2000s. It's a buyers market here still so closing cost is paid by seller and houses are typically in the market for over 60 days if that helps any. I trust my realtor, but curious on the thought process and what ya'll would price this home at. 

Thanks!

@Ezekiel Racelis Are you trying to flip this? If so you’ll likely lose money. You can maybe do a BRRR but that’s a lot of money and Reno to maybe come out With some equity

@Caleb Heimsoth No I am not. I am trying to rent this out after living in it for a year or two. It'll be under a renovation loan with 0% down (I am in the military) and only 5.25% interest rate. The loan is capped at $195k so I have about 80k to work with for renovation. My plan was to take out a HELOC if I have enough equity at the end and purchase another rental property.

Originally posted by @Account Closed :

@Caleb Heimsoth No I am not. I am trying to rent this out after living in it for a year or two. It'll be under a renovation loan with 0% down (I am in the military) and only 5.25% interest rate. The loan is capped at $195k so I have about 80k to work with for renovation. My plan was to take out a HELOC if I have enough equity at the end and purchase another rental property.

Do you see how you likely have no equity in this deal?  You buy for 110, spend 70 and it’s worth 180.  Sure it may be worth more but it sounds like you’re basically guessing at the value 

@Caleb Heimsoth which is why I was wondering how you would price this property. My realtor based on CMA said it will be around $220k, but the issue why she says it may be wrong is due to the fact that this property only has 3 bedroom/2 bath while the properties on her CMA with the same Sq Ft has 4 bed/2 bath. Those with 3 bed/2 baths in the area but are 300-400 sq ft smaller are valued $180k. So do you go with the sq ft or the bedrooms estimate?

Originally posted by @Account Closed :

@Caleb Heimsoth which is why I was wondering how you would price this property. My realtor based on CMA said it will be around $220k, but the issue why she says it may be wrong is due to the fact that this property only has 3 bedroom/2 bath while the properties on her CMA with the same Sq Ft has 4 bed/2 bath. Those with 3 bed/2 baths in the area but are 300-400 sq ft smaller are valued $180k. So do you go with the sq ft or the bedrooms estimate?

If you run a CMA (which is best you can do besides an appraisal), and your realtor says it could be wrong and you trust your realtor, then I'd walk away.

I can’t tell you which is the right answer but hard to value property is going to create a lot of issues down the road.   

I’d walk.  All the property I buy is super easy to value.  Find some that’s like that

@Caleb Heimsoth Gotcha. Now, what if all I plan to do is rent it out? We had done an unofficial rental appraisal (realtor is a friend of mine, and she got one of the managers in the Rental Property Management department looked into it). He said I can get $1,750 easy a month after the renovation plan I had in mind. Mortgage including insurance is going to be $1,250. That's a $500 cash flow with a zero down. Wouldn't that be a good deal? The area I am at is barely getting 0.9% on rental. Should I just invest elsewhere?

Sorry for all the question, just getting started with real estate investment and trying to figure everything out. 

Originally posted by @Account Closed :

@Caleb Heimsoth Gotcha. Now, what if all I plan to do is rent it out? We had done an unofficial rental appraisal (realtor is a friend of mine, and she got one of the managers in the Rental Property Management department looked into it). He said I can get $1,750 easy a month after the renovation plan I had in mind. Mortgage including insurance is going to be $1,250. That's a $500 cash flow with a zero down. Wouldn't that be a good deal? The area I am at is barely getting 0.9% on rental. Should I just invest elsewhere?

Sorry for all the question, just getting started with real estate investment and trying to figure everything out. 

First off that’s not 500 cash flow.  You have principle and interest, taxes, insurance, maintenance, capex, vacancy, property management.  

If you include all that you’re risking a ton of money to make very little.  I would walk.  I hope this helps.

I would educate yourself much much more because if you don’t you will lose a lot of money. 

 Like I have said: 1250 IS the mortgage. It includes tax (tax is only 0.5% here), interest, principle, and insurance. I am not understanding what you are trying to get at. I thought cash flow was after the mortgages minus vacancy/repair (although i will be having a free handyman since it’s part of the company perk I get if I go thru with a certain property management). Property management is only going to cost me 100 a month + half a months rent every turnover). 

@Caleb Heimsoth

Originally posted by @Account Closed :

 Like I have said: 1250 IS the mortgage. It includes tax (tax is only 0.5% here), interest, principle, and insurance. I am not understanding what you are trying to get at. I thought cash flow was after the mortgages minus vacancy/repair (although i will be having a free handyman since it’s part of the company perk I get if I go thru with a certain property management). Property management is only going to cost me 100 a month + half a months rent every turnover). 

Your mortgage is your note, which is principle and interest.  Taxes and insurance is separate.  Then there’s the other stuff you didn’t mention in your last post.

You can’t take principle, interest and taxes and say 1750-1250 is your cash flow.  That’s not right.  

Good luck.  I wouldn’t do this deal, but you are free to do what you wish 

oh gotcha. Not sure if it’s different in other places, but here mortgage payment includes taxes and insurance. 

Thanks. I'm probably going to go thru with it since I still don't see how I won't make money off of it. In my opinion, having 400 dollars after mortgage (including tax and insurance) and property management is pretty good for my market. Also, the insurance is regular insurance not pmi (I don't have to pay PMI even with zero down).

@Ezekiel Racelis it sounds like it would make a good primary residence. Unfortunately it doesnt sound like a good investment opportunity. If it's a 3 bed, you cant compare it to a 4 bed for value. You may be able to add a little for the additional square footage, so you may be able to put a $190-$200k value on it.
Originally posted by @Jason DiClemente :
@Ezekiel Racelis it sounds like it would make a good primary residence. Unfortunately it doesnt sound like a good investment opportunity. If it's a 3 bed, you cant compare it to a 4 bed for value. You may be able to add a little for the additional square footage, so you may be able to put a $190-$200k value on it.

Thanks! Exactly the type of answer I was looking for! Now it's not going to be a flip but converting it to a rental property in the near future. My mortgage payment/PITI is going to be 1250 a month after renovation. Had a rental appraisal and he said easy 1750 after all the renovation.

The loan is going to be the new VA Renovation loan so it's a zero down, no PMI, renovation loan.

Is it still a bad rental property?

@Ezekiel Racelis I dont know, there are too many factors. As @Caleb Heimsoth mentioned, it's not going to have much cash flow, but, on the other hand, there will be very little money out of pocket. If the area is appreciating, it could be a good long term hold. The problem is that with a slight downturn, it becomes a negative equity and negative cash flow investment. I, personally, wouldn't buy it as an investment property. It's just way too tight all the way around. Now, if you live in it for 2 years and find that its value has gone up or the rental rate has increased, it could be a more solid deal.
Originally posted by @Account Closed :
Originally posted by @Jason DiClemente:
Account Closed it sounds like it would make a good primary residence. Unfortunately it doesnt sound like a good investment opportunity. If it's a 3 bed, you cant compare it to a 4 bed for value. You may be able to add a little for the additional square footage, so you may be able to put a $190-$200k value on it.

Thanks! Exactly the type of answer I was looking for! Now it's not going to be a flip but converting it to a rental property in the near future. My mortgage payment/PITI is going to be 1250 a month after renovation. Had a rental appraisal and he said easy 1750 after all the renovation.

The loan is going to be the new VA Renovation loan so it's a zero down, no PMI, renovation loan.

Is it still a bad rental property?

You're comparing apples to oranges when you say mortgage payment is the same as PITI but whatever lol.

You realize you will have to front the money for the rehab most likely right? Your contractor isn’t going to work for free and a lender won’t lend money usually until after it’s done.

Listen to Caleb , the numbers just aren’t there . This is clearly not a good investment . I’d bet if you crunched accurate numbers you’d see  there’s simply no meat left on the bone in this property by the time it’s all said and done . Walk away 

Originally posted by @Caleb Heimsoth :
Originally posted by @Ezekiel Racelis:
Originally posted by @Jason DiClemente:
@Ezekiel Racelis it sounds like it would make a good primary residence. Unfortunately it doesnt sound like a good investment opportunity. If it's a 3 bed, you cant compare it to a 4 bed for value. You may be able to add a little for the additional square footage, so you may be able to put a $190-$200k value on it.

Thanks! Exactly the type of answer I was looking for! Now it's not going to be a flip but converting it to a rental property in the near future. My mortgage payment/PITI is going to be 1250 a month after renovation. Had a rental appraisal and he said easy 1750 after all the renovation.

The loan is going to be the new VA Renovation loan so it's a zero down, no PMI, renovation loan.

Is it still a bad rental property?

You're comparing apples to oranges when you say mortgage payment is the same as PITI but whatever lol.

You realize you will have to front the money for the rehab most likely right? Your contractor isn’t going to work for free and a lender won’t lend money usually until after it’s done.

 Lender will be lending a certain percentage up front to the contractor, already have contractor and lender agreed on payment on whatever house I pick. Won't see any of the rehab payment, goes directly from lender to contractor.

Originally posted by @Dennis M. M.is M.:

Listen to Caleb , the numbers just aren’t there . This is clearly not a good investment . I’d bet if you crunched accurate numbers you’d see  there’s simply no meat left on the bone in this property by the time it’s all said and done . Walk away 

I am trying my hardest lol.  I’m just gonna stop 

Originally posted by @Dennis M. :

Listen to Caleb , the numbers just aren’t there . This is clearly not a good investment . I’d bet if you crunched accurate numbers you’d see  there’s simply no meat left on the bone in this property by the time it’s all said and done . Walk away 

 Gotcha. Was hoping for this one to be a good deal since the other properties in the area are actually worse in terms of cash flow.

Originally posted by @Caleb Heimsoth :
Originally posted by @Dennis M. M.is M.:

Listen to Caleb , the numbers just aren’t there . This is clearly not a good investment . I’d bet if you crunched accurate numbers you’d see  there’s simply no meat left on the bone in this property by the time it’s all said and done . Walk away 

I am trying my hardest lol.  I’m just gonna stop 

 No, I am starting to understand. So in your opinion, what cash flow would be considered a cash flow? I thought anything above $250 was good. I'll use that rental calculator on here and try to get a better picture.

Originally posted by @Account Closed :
Originally posted by @Dennis M.:

Listen to Caleb , the numbers just aren’t there . This is clearly not a good investment . I’d bet if you crunched accurate numbers you’d see  there’s simply no meat left on the bone in this property by the time it’s all said and done . Walk away 

 Gotcha. Was hoping for this one to be a good deal since the other properties in the area are actually worse in terms of cash flow.

Have you considered investing out of your area ? Because 195k can make you a lot of money every month if you played your cards right . If your in a hot market area then your really limiting yourself if you want to do buy and hold rentals . In some areas the numbers will never work 

Originally posted by @Dennis M. :
Originally posted by @Ezekiel Racelis:
Originally posted by @Dennis M.:

Listen to Caleb , the numbers just aren’t there . This is clearly not a good investment . I’d bet if you crunched accurate numbers you’d see  there’s simply no meat left on the bone in this property by the time it’s all said and done . Walk away 

 Gotcha. Was hoping for this one to be a good deal since the other properties in the area are actually worse in terms of cash flow.

Have you considered investing out of your area ? Because 195k can make you a lot of money every month if you played your cards right . If your in a hot market area then your really limiting yourself if you want to do buy and hold rentals . In some areas the numbers will never work 

 No I havent thought about it. I am still active duty so I move around a lot, so I was just going to buy a couple of houses every time I move.

250$ would be good for a single family home .. the problem is you did not account for many of the variables and that 250 doesn’t really exist . If you were to do a careful analysis with all the expenses you’d see this is marginal at best and likely negative cash flowing at worst 

@Ezekiel Racelis I disagree some with these guys. I did something similar to you with my first home. Wasnt a fixer but bought a house at retail, for $125k, and used an FHA loan. I bought it in 2010, and got a first time buyer credit from the federal govt for $8000, so it was basically $0 down. Lived there for 3 years and then moved. My PITI was $925/mo. and I rented it for $1275. So, gross cashflow was $350, but i had a management co. manage it so that brought my gross cashflow to $225. Had it as a rental for 5 years with the same tenants. Even if maintenance ate that $225 per month (which it didn't, had virtually zero maintenance issues), we still got tax write-offs, debt pay down, and appreciation. We sold it this last September for $155k, and after closing, received a check for $25k. So in the end, for my $0 investment, I made $25k cash at the sale, roughly $8000 in cash flow, and thousands saved in taxes. My point is that low cashflow deals in good areas can still be a good investment.
Originally posted by @Jason DiClemente :
@Ezekiel Racelis I disagree some with these guys. I did something similar to you with my first home. Wasnt a fixer but bought a house at retail, for $125k, and used an FHA loan. I bought it in 2010, and got a first time buyer credit from the federal govt for $8000, so it was basically $0 down. Lived there for 3 years and then moved. My PITI was $925/mo. and I rented it for $1275. So, gross cashflow was $350, but i had a management co. manage it so that brought my gross cashflow to $225. Had it as a rental for 5 years with the same tenants. Even if maintenance ate that $225 per month (which it didn't, had virtually zero maintenance issues), we still got tax write-offs, debt pay down, and appreciation. We sold it this last September for $155k, and after closing, received a check for $25k. So in the end, for my $0 investment, I made $25k cash at the sale, roughly $8000 in cash flow, and thousands saved in taxes. My point is that low cashflow deals in good areas can still be a good investment.

Thanks for the input. I'm gonna have a talk with my realtor and contractor to see the numbers. I used the calculator on here and it showed $150 cash flow after repair expenses, vacancy, PITI, etc (got the vacancy and repair rates from property management) was taken into account. Which I don't think is all that bad for 0 down. As long as I don't go to a negative cash flow I am fine. I'll be using my military benefits to pay for these homes and I have bank lenders in my pocket that offers 0 down no pmi for military outside of VA loans.

Still kinda nervous since it’s gonna be my first time buying a house let a lone an investment property. Still trying to get all the terms and such down lol. 

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