Seeking opinions on a possible deal in San Diego

9 Replies

Hello BP world, 

I have a lead in the Mira Mesa area of San Diego that I hope will work out, but need some opinions as this should be my first deal. 

It's a 5br, 2.5 bath. 2180sf SFR home.

The seller is asking for $460K and is firm on this.

this seems to be in line with low-en comps from the area, but then I see that average prices in the area are $485k. However, many comps also lean to $550k and up.

The seller did have this listed at 550k as of March, but says he de-listed in frustration after his last offer fell through due to bank financing issues.

I have not yet seen the property as of yet, but hope to see it today.

based on this limited information so far, does this look like a reasonable deal?

Here's the only cheaper 5/3 I saw:

840 Capricorn Way, San Diego, CA 92126 at 399k (or 245k starting auction)

Pricing seems appropriate.  Not sure if it would be easy to find a tenant that could cover the monthly mortgage but there could be some appreciation in the future.

@David Tankersley  

Mira Mesa is a popular area and we have done a few flips in the neighborhood over the years. It depends on location, age of home, scope of work needed, and detailed comp analysis. It has potential and seems to be worth checking out. We are based here in San Diego and I have lived here since 1996. 

Once you have better idea of Seller's motivation, there may be some negotiating room that isn't strictly focused on price. Feel free to reach out with any other questions.

Originally posted by @David Tankersley:

Hello BP world, 

I have a lead in the Mira Mesa area of San Diego that I hope will work out, but need some opinions as this should be my first deal. 

It's a 5br, 2.5 bath. 2180sf SFR home.

The seller is asking for $460K and is firm on this.

this seems to be in line with low-en comps from the area, but then I see that average prices in the area are $485k. However, many comps also lean to $550k and up.

The seller did have this listed at 550k as of March, but says he de-listed in frustration after his last offer fell through due to bank financing issues.

I have not yet seen the property as of yet, but hope to see it today.

based on this limited information so far, does this look like a reasonable deal?

David,

What is your intention for this property -- buy / hold? With an assumption of $2,500 in rent (based on Rent-o-meter), 5% vacancy factor, $5,500 / year property taxes, $750 / year insurance, 12% maintenance and CAPEX reserve, and self managed you are looking at about $2,000 / year cash flow if financed at 80% LTV, 4.5% interest rate, 30-year fixed. The CAP rate based on these assumptions is about 4.1%.

However, many will caution you on this site that expenses will approach 50% long term with any rental property, so with those numbers in mind you will be looking at a 3.3% CAP rate and negative $1,500 / year cash flow. This is probably a realistic figure if the property has ANY significant deferred maintenance, which most properties sold at a discount do.

Appreciation potential? Sure ... but that's more speculating than investing in my opinion. 

If you are looking to flip I highly doubt there is enough room there to make it work. 

Thanks you all for your input so far.

I am looking to wholesale this property, perhaps to a re-habber.

I'm confused as to why this may not be doable.

According to Realist, the numbers look good:

RealAVM™ (1): $548,583 Confidence Score (2): 85

RealAVM™ Range: $493,725 - $603,441 Forecast Standard Deviation (3): 10

Is this not valid information to consider?

It's a big risk either way.  Much safer ways to invest half a million I would guess.

David,

I am not familiar with how Realist values the properties. Is the RealAVM based on the average home in average condition? If so, what are your projections for an ARV on this home? A quick search of the area shows me that indeed there are homes that have sold in the high $500s to very low $600s, with one outlier at $720K (right on canyon.)

I am no expert (!), but I believe for a rehabber to make sufficient money on this home, they are going to need to be into the home for about 83% of the ARV. So as an example, if they sell at $600K, the most they can spend, purchase price + closing costs + rehab is about $498K. That leaves precious little for a rehab of a 5-bedroom home, perhaps $30K. Adjust your numbers accordingly if you think the ARV is higher (or lower.)

So whereas the home itself may be purchased at a nice discount off of retail, it doesn't appear to me to have enough of a margin to wholesale to a rehabber. Please let me know if you have questions on my calculations. 

John

Thank you John,

   I was wisely steered to some very similar information by a mentor.

The average comps that I see are at 530k, making the numbers even worse.

I'm either just going to tell this client that the numbers just are not there for investors, but perhaps if he can find a cash buyer simply looking for a live-in home he may get lucky. Then perhaps I'll call him in a month and see if he's ready to settle on a lower price.

Alternately, I could offer to market this at 470k'ish, looking for a 10k profit, and see if anyone bites andpossibly seek a best offer, In this case I would market for live-in buyer with cash. This is a loooong shot by any means but this could work as long as the seller understands that I have no cash commitment should this not work out. If it doesn't work, Maybe then the seller would be willing to budge.

Any thoughts on this?

I have zero knowledge or experience as a wholesaler, so I will kindly bow out as to your strategy from here. 

Good luck!

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