Foreclosure: Good deal or bad deal?

8 Replies

Hi Everyone,

I'm wondering if anyone would consider this as a deal.

Small 2 Unit Multifamily for about 80k:

Unit 1 = 3 bedrooms/ 1 bathroom

Unit 2 = 2 bedrooms/1 bathroom

The area has been on a decline for a while now, and I'm wondering if this is a good deal or not. The max. I can charge for the 3 bdrm. is $800 and $650 for the 2 bdrm due to the extremely cheap cost of living. I have more than enough money for the down payment. I'm am concerned since other multifamily houses in the area have sold for less recently and I'm not sure the market will appreciate anytime soon. Also not too far away has a high crime rate and I'm concerned about attracting bad tenants or tenants not being able to afford the rent. The unit might also need a bit of work.

I did an estimated value of the duplex on multiple sites and the value was 99k.

What do you think?

I'm learning to recognize good or bad deals and would like to use this as an example.

Thanks!

Keri,

You talked me out of wanting to do it.

Thanks for the response.

I was looking at it in terms of the mortgage being $400 but I can actually receive $1250 a month assuming I can get the max rent from both units. The repairs I can handle on my own.

@Keri Browne For buy and hold you want to look way down the road and try to see what is coming. Declining neighborhood, bad crime rate nearby, depreciating property values. Would you buy in that bad area that is nearby? If not, then consider that you might own in the equivalent type area in a few years. Then it becomes harder to find tenants, more likely to sustain damage, higher insurance, all the things we try to avoid.

@Walt Payne thanks for that. I didn't see it that way. For your second point, how do you suggest I see what's coming onto the market. Do you currently have a any resources that you use?

Originally posted by @Keri Browne :
@Walt Payne thanks for that. I didn't see it that way. For your second point, how do you suggest I see what's coming onto the market. Do you currently have a any resources that you use?

Just knowing the market, especially the local area/neighborhood you are buying in. Watching the trends. Little things like trash not cleaned up, yards not mowed, paint deteriorating, vandalism, trends in list prices. No crystal ball, just observation.

Since you've labeled yourself as a "homeowner" I'd like to see that get changed soon to "investor."

The opportunity you outline might be ok for a first deal. It's about the same as my first few deals thirty + years ago. Not great, not a home run, but it could cash flow (positively...since all real estate cash flows one direction or the other).

If you could buy this with seller financing on terms that still cash flowed well, that could be acceptable. I'm guessing the property is listed with an agent, which is why you've got a price in mind. Why not find out if the owner is a private party and, if so, negotiate to pay a price that pushes as much risk onto the seller and payment on principal far out into the future?

While no one has a crystal ball, you ought to have some vision of what is happening in the community. Politics stable? Schools? Employment diverse or dependent upon a single employer? Could you see yourself as owner three to five years down the road and still expect to be smiling? Would exit plan to sell/trade up still be possible?

Even if the future looks bleak and appreciation potential discouraging, you have to start somewhere. Keep learning and studying and asking more (and better) questions.

And do not let other people interfere with your dreams.

This deal may be good or bad. Like many people have said, it comes down to what the market will be doing.

You may not have the knowledge to know this, but experienced RE Brokers, other investors, could offer sound market advice.

If there is a local REI group you could join and network in, that may be your best option.

Thanks for the input everyone. I have decided to pass on this duplex.