Fishing for Ideas to buy neighbor's home for Buy/Hold

5 Replies

Hi All,

Just thought I'd take a stab at asking for some advice. I'm looking across the street at a vacant house (4 beds 3 baths 2,512 sqft). I know the owners needed to move out of state and are asking a tad more than I think they can reasonably get within the next year or so ($199k). Its been on the market for ~ 6months now.  Property tax is $2,500/year and I doubt they enjoy being stuck paying that amount plus whatever mortgage payment(s) they have for the unforseeable longterm.

I'd like to offer them a win/win offer whereby I take ownership of the property and rent it out (for ~$1,500/month, I suspect). However, at the list price of $199k, the ROI would be practically nil. Even at a sale price of $50K, the cash flow would only slightly be over 15%.

So, I'm wondering if anyone in the BP community might be able to suggest a strategy that could satisfy the owners (sellers) and the investor (me). All suggestions are welcome.

Best regards,

Mike Klein
Point Freedom Investment Group
Gainesville, FL

In terms of strategy, I would say (1) Do as much research as possible, find out what other similar properties have sold for, study the comps. Is it normal in your area for a property to sit for 6 months or is this considered a long time. If they're not getting offers, its likely their asking price is too high or there's something wrong with the house.

(2) In my mind the best strategy is solving the obvious problem - they've had to move and they're having to carry this house while having the expense of setting themselves up in a new location. Just make an offer. Your research and your investment goals will tell you what the offer number should be.

Even if your offer is lower than what they want its what you're prepared to pay (remember: the market price is the price the market is willing to pay and that you are the market). My approach when dealing with sellers is to explain how I got to my number (comps in the area, potential rental income to me as an investor) and to indicate that I am firm on my number. Even if they are not willing to consider my offer now, I make sure they know my door is always open and if they change their mind they can reach out to me at any time.

Don't be uncomfortable about making a low offer. If you are uncomfortable, learn how to get more comfortable.

Hi Mike,

Since the property is right across the street from you, would you consider offering to manage the property for them, as a rental?

I'm sure you're not interested in managing a property you don't own.  However, it would give you a change to learn more about the owners and their situation.  You'd establish a good relationship with them, while learning about the property itself.  Then perhaps the opportunity would arise, and you'd offer to buy.

Thanks for the suggestions, Wendy and George. 

I agree. I think I will simply do my calculations and offer the seller's my opportunity. I really wouldn't mind managing the property for a 20-40% fee. In fact, I totally agree it would offer me a great opportunity to gain the seller's confidence and ultimately may lead to them agreeing to sell the home to me at a discounted rate.  I just hate seeing a perfectly good home sitting vacant (especially one just across the street from me).  

I'll keep you posted. Thanks again.

10% is a much more reasonable management fee plus usually first months rent to place tenants.

A 20-40% fee for managing?? Are you aware what normal property management fees are? I would suggest spending more time learning before you approach the owners, otherwise they will not take you seriously.

I'd also say that you should make them an offer based on your numbers, and move on. Just because you think the owners should be motivated, doesn't mean they necessarily are. You can't make someone be a motivated seller.

And obviously don't fall in love with the house just because it's close to you. It's all about the numbers.

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