I've been a lurker for some time and decided to take action today. I still have a lot to learn and currently looking for a local mentor.
I had an acquaintance contact me today and asked if I wanted to buy his house. It an hour away from me and I'm not familiar with the area. He states it's a desirable area because of the schools. I want to see what your initial thoughts are until my realtor can get me some factual information.
House is a 3/2/2 built in 07 in Waco, Tx. He owes 116,000 on it and is willing to sell for that. Until my realtor gets better info, I believe it's worth 135,000. He has had a tenant renting since 08. I believe it will need basic cosmetics including paint and carpets removed/flooring installed considering it has been a rental.
Your advice is appreciated!
@Jeremy Jackson would he let you assume the current mortgage? What is the current rent incoming and is he paying and wanting to stay. You may have a turn key with financing if you play your cards right.
Ask your Realtor go give you the rental comps for the area. Also ask him to help you calculate the cash on cash return per year. I usually aim for more than 10% return if i buy the house cash, and more than 20% if i put 20% down. Anything below that i think you should walk away.
Hope it help and welcome to BP
He's using his Va benefits and eventually wants to restore them but is in no hurry to buy again.
Can you elaborate on what assuming his loan entails?
He's currently receiving $900 a month for rent, which is what his mortgage payment is. He was in a tough spot a few yrs back and needed someone in it. He told me most of the houses in the area are renting for 1200/month and up. I still need to research that.
I'll also ad that I have the option to use my va guarantee also. I used it to borrow for my current residence, but may qualify under 2nd tier.
Check the comps. Figure out the FMV. How do you plan on purchasing the property, Cash? If not cash see if the seller is willing to do a "Subject To" mortgage. Find a local REIA that is a great place to find a mentor.
@Ronnie Wilson I'm going to my first REI mtg Thursday. Looking forward to it. Owner has a 3% apr on his current loan. Tenants have rented from him since 2010 and have expressed an interest to buy but has credit issues.
So many possibilities!
You're on the right track. I would add to your due diligence items a 3rd party home inspection and be sure to walk the property and neighborhood, preferably on the weekend when neighbors are home and can be observed/talked to. See if the area is heavily rented or if it's mostly owner occupants. Too much investor activity will most likely negatively affect your exit, which can chew up any positive cash flow or principal pay down you've been able to achieve.
Do you plan on self managing or hiring a PM? In either case, I would talk to a property manager to find out the scoop on that area. Consider how much inventory they have available, typical vacancy rates, rent trends, and what the rental market climate looks like. If you use a PM, be sure to factor in both their management % as well as lease up/renewal fees. If possible, time your lease termination to end in spring/summer so that you aren't stuck off peak market with a vacant property.
As an agent, I would also recommend title insurance and factoring that cost into your cost basis, whether you're going through an age or not. Last thing you want is an encumbered property.
If you can get the property financials from your friend, assuming he tracks them, that would go far in assessing the property's financial performance.
How long do you plan on holding the property for and what's your goal? That will also be a big factor in how you structure the acquisition, assuming all other DD checks out.
Hope that helps and best of luck.
Thanks for all the great info. Im going to wait on some comps before I go any further. I'm not interested in the property as a rental since there is no positive cash flow, at least not with his current mortgage and rent. I don't think there is much wiggle room there.
The numbers are too tight on this property for my first deal. I'm going to see if anyone is interested at the next REI mtg. Looked at another property today. I'll post those numbers up later to get feedback.
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