Hi everyone, Im just looking for some advice on this deal before i make a decision. 3 Bed, 2 bath home, fair condition with tenants ( 7 years) owner lives in CA. asking price 30,000, ARV = 50,000. Does any one think it is wise to accept notes on this property? BTW this will be my first rental. What do you think will be a good offer to make?
1. What are the repairs needed?
2. What is the monthly rent?
3. what are the monthly expenses on the property
4. If you live in mississippi and the property is in CA you may hire a management company. They charge anywhere between 7% to 10% of gross rent.
If the property will have a positive cash flow with not alot of work they it may be a deal. Give us some more info
Repairs are just carpet and paint, rent $650, expenses are just utilities, the property is in Ms., and the owner is in Ca. Im thinking about a $400 note with %8 interest.
Is the property in Jackson? If so, I'll be glad to give you my thoughts on it. Depending on the area, $30K could be overpaying for a $650 rental.
Yes it is in Jackson, (south jackson)
I haven't seen the property yet but my realtor that I network with is giving me all the info so far. It is located on woody dr, close to smallwood st. The property can rent for 750 but the tenants have been there for 7+ years and the owner chooses to keep the rent at its current price.
@Christopher Williams my first thought is how did you arrive at your ARV? Below 50k is the price point where conventional financing becomes a challenge. That's not extremely important for you as an investor, but it is to retail buyers who are going to be part of your plan A or plan B whether you are a buy/hold or fix/flip investor. Is the area the property is in likely to decline or increase in value over time? That depends on market trends, but a property on that critical price point bubble should be analyzed carefully.
You are also using some terms in a bit unorthodox way when you say "accept notes on this property." Are they offering owner financing? I'm not sure what you mean by this?
The estimated repairs are a very important component of acquisition cost of a property. Carpet and paint can cost a significant difference if you're talking about a 1200 sq ft house vs. a 2500 sq ft house? Coming up with the total repair estimate is what will help analyze the deal. Those are the kind of details you need to have to come up with how much you want to offer for the property. Even if it's not an immediate expense as long as the current occupants are there, it will have to taken care of when they eventually move.
What utilities is the investor paying? That's another unusual expense? That's something that is ordinarily paid by investors who own multifamily properties who end up paying for water. And that's still not even in all cases.
Here's what you need to figure out. What will it cost to do any deferred maintenance/repairs (DMR)? What will it cost you during the period the property is vacant while doing any necessary repairs/maintenance [holding costs (HC)]? What is the ARV of the property based on recent sold comps of like properties? How much profit ($$) makes it worth your time and effort to invest in the property? Here's your formula:
ARV - DMR - HC - $$ = Purchase Price (PP) A good offer is an amount below the PP to allow for negotiation with the seller. You should come up with a maximum allowable offer (MAO) that fits your formula and is the point where you say, if I can't buy at or below this price, I'm not buying.
@Robert Leonard thats great information and I want to thank you for your time and response. ARV is due to comps from the MLS. Yes, owner financing is available on this property, the area has shown a very slight increase over the past three years, it is a single family residence and the tenants pay all utilities. I have not viewed the property yet, but will in the next few days. I am only stating what my realtor (trusted friend) has told me thus far. Please excuse my use of terms during discussions because i am fairly new to REI. I would like to thank every one for all advice and support, my education grows with every post!!!!
@Christopher Williams I own a 3/1 on Kentwood at $650 and a 3/2 on Whitten at $800 in the same area. Low to mid 30s K for a house in this area is steep in my opinion, but if you have good seller financing terms it may make sense for your situation. Investors are not paying near MLS prices for these rentals and the MLS prices can be misleading. Example: these two houses appraise for $65-70K but similar ones can be bought and fixed with cash for around $25-$28K.
Thanks for the insight @David Edge, I will keep that in mind when negotiating with the seller, I will be able to make better judgement after i view the property. Thanks for your wisdom about the area and your advice is greatly appreciated.
If you are available, you should join the local RE investor group for lunch on Thursdays:
There is also a meetup group that is meeting tomorrow night dealing with motivated sellers:
I know this thread is old but I just wanted to say thank you as well for all the advice that was given here. My wife and I are looking to get into real estate investing, specifically rental properties so we're soaking up as much knowledge as possible.
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