3rd deal, heck of a deal. Cold feet

7 Replies

I’m a buy and hold investor in a small city in PA. Home prices in my area are typically considered very affordable and the average rent also mirrors that. I have two rental properties, both are doubles with 3 bedrooms per unit.

Due to the lower average income of my area the majority of rental properties are probably considered D and C properties.

So I submitted a verbal offer at 75% of what the place was actually listed. It was listed around 100k and I offered around 75k. The numbers would certainly work as each unit would bring $600/m for a total of $1800/m with the mortgage w everything escrowed estimated at being just over $600/m.

I’m getting cold feet, I think I speak for a lot of investors when I say the uncertainty of the Rental market with rent moratoriums and uncertainty regarding unemployment and Covid makes me feel very hesitant investing at the moment. I offered and essentially named my price because of that and had no problem walking away, and the seller actually ended up meeting me at my price which I feel like is a no-brainer deal. Any advice? Or also just wondering how you guys are feeling/investing during all of this madness?

Originally posted by @Alexander Churchill :

@Bjorn Ahlblad thanks for you’re input! What do you mean by the 2% rule?

 It is a measuring stick many folks use. The 1% rule is when one month's rent equals the purchase price-a rarity in most markets today. The 2% rule is when one month's rent is 2% of the purchase price. 1800 monthly rent and 180k purchase is the 1% I am speaking of. It is a rough measure I use to decide if the property deserves a deeper look. Do a search and you will find many references and opinions.

The numbers you reference are almost too good to be true.  You do not say anything about property condition.  Does the property require a lot of repairs?  Are there non-paying tenants living there who cannot legally be evicted?  Is there an over-supply of cheap housing in your area?  Real estate is a long term play - I would not make a decision about an investment based on bumps you may encounter for the first few months you own.

@Darius Ogloza

Well there’s always going to be a risk/reward. The housing in my area compared to a lot of areas would probably be considered “cheap” most of the homes are 80-100 years old. I mentioned that the property would probably fall under a c or d class property. So it isn’t immaculate but it’s certainly not falling apart. It’s a stucco row building with some cosmetic needs outside like cracks in the stucco and maybe a new roof in the next few years which would obviously be it’s biggest expense. Aside from the that 2 of the 3 units are rented and the other is ready to rent. As far as the tenants go I do plan to make some adjustments as far as length of lease and raising the rent as they are both on a yearly and only paying 575/m. The guy who owned the property is apparently very old and not doing super well health wise and he didn’t run the place on a super tight ship. As far as I know, and I’ll be consulting legal guidance this Monday, that legal buyers are still able to decided whether they want to keep tenants or they’re current lease that they are on. So I’ll undoubtedly inquire about what we can do there and have the agent add those contingencies into the sales agreement which would then fall on the seller to make sure the tenants are aware of what’s going on so they can decide if that want get on board or leave

@Alexander Churchill also wondering if anybody has experience with row homes? The 2 I own are standard double homes. I don’t really have experience with anything less than 3bedroom as I try to attract a larger tenant pool. Any thoughts?