San Diego, CA · Member since 2014 · 78 posts · 10 votes
Alright, I really thought I found a good deal but after running some numbers turns out it's not even close! Like way off (i'm still very new so if you laugh just try not to choke). Here we go...
So I found this deal on the zillow and was curious because its being sold by the owner and they state right up front that they do not want to be contacted by any agents. They are selling a duplex in a pretty good area.
$429,000
Both units are 2 beds 1 bath.
They currently get $1300 each side
One of the units needs a little "work".
Would like to use an FHA loan putting 3.5% down
I would live in one unit as owner occupant
I called the owners to see why they are selling. Turns out they are an older retired couple who live on the other side of the county and are selling off their units that are not close.
So I ran it through the rental calculator and mentally cursed a few times. In order for this deal to work I would need them to sell it for like $350k
I know I should be looking for off market deals and not Zillow. I also know that I live in a little place called San Diego and its not so cheap.
Is the only option to either put 20% down or put in a super low offer and pray?
And before 14 people come in and say "you really should try to invest out of state" I would be living in one unit. So either I continue throwing large amounts rent money down the drain or I try to make a smart move and invest where I live.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
"So I ran it through the rental calculator and mentally cursed a few times. In order for this deal to work I would need them to sell it for like $350k"
OK...so offer 350k. That's how it works. You analyze the property to see what your maximum offer should be. Then that's what you offer. If they say "no", you are no worse off than you would be if you just passed on it.
...but, they may say "yes".
Remember, every question you never ask has the same answer...."NO".
Rental Property Investor · Cleveland, OH · Member since 2015 · 21 posts · 10 votes
11y
Brandon,
I am also new to investing. Based upon your numbers, I would say you have to be a long ways off. From what I gather your property is a duplex and you plan to live in one, so really you're only bringing in $1,300 a month, and assuming you have a decent interest rate, you'll still be paying almost $1,000 yourself for the mortgage. It seems to me that you have two options
1.) Purchase the property as low as you can and live there while building equity and still basically pay rent.
2.) Purchase the property via a conventional loan and pay rent elsewhere. Either way I don't see how it would be playing out the way you envision. Just my thoughts.
Hartsdale, NY · Member since 2015 · 874 posts · 218 votes
11y
What would the normal rent for you to pay for this kind of apartment, If it is at least the $1,300 you would consider the income here at $2,600. If you have to pay more for this kind of apartment you could calculate a higher income.
If you get if for $350,000 it still would be a stretch. But I don't know your expensive area . I can not see your expense sheet as it is too small but if you listed the expenses it would be clearer. Armed with this information you could ask a Real Estate agent to find something in that area that is less expensive and has more income that you could look at. It might be a starting point price wise for you.
Join a Real Estate Club and /or a Real Estate Meet Up group in the area you want to live in and network there and see what you learn.
You should not really buy the first place you are considering. But go look at it. How much renovation is needed? You have to add that renovation cost to your buy. Don't fall in love with this place but you can use it as a standard to compare other duplexes, triplexes to
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
"So I ran it through the rental calculator and mentally cursed a few times. In order for this deal to work I would need them to sell it for like $350k"
OK...so offer 350k. That's how it works. You analyze the property to see what your maximum offer should be. Then that's what you offer. If they say "no", you are no worse off than you would be if you just passed on it.
...but, they may say "yes".
Remember, every question you never ask has the same answer...."NO".
Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
11y
As an agent here is SD and investor it is not uncommon for me to wright an offer well below ask for it to work. SD is a very tough market to find residential multi family to cash flow without very large amounts down. It's pretty much impossible unless you find something in the Barrio ( Hood ). I have been able to find some 4 plexes in SD that you can live for free in with FHA financing. Tough to find and once again gonna be the hood. Personally I have taken this time in the market to save my money or invest in other states. Although I wouldn't be apposed to a wholesale or two. :) If you need any guidance in SD just let me know.
Why would you pay out $2,735.41 every month to lose money? I could buy 5 SFH in my area with that much/month and have a positive CF of over $4,000/month.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
Look at it another way. Start with what you would be happy with in POSITIVE cash flow per month, then work your way backwards (revers engineer it) to find out what you should offer. By the way, who came up with the $440k ARV?...and how did they come up with it?
Why would you pay out $2,735.41 every month to lose money? I could buy 5 SFH in my area with that much/month and have a positive CF of over $4,000/month.
Joe I know you're a really smart guy and in most cases you would be right. but don't forget that this guy is in San Diego and for him it would probably be cheaper than what he is paying in rent and would build him some equity.
This is no model for future investing, granted, but it might actually be a better situation than he is in now and allow him to save some money. Just remember that his situation is not the same as a seasoned investor who is buying purely for profit, and this might be one of the better deals going in his target market.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
11y
Couple comments:
1. So what if they're getting $1300/m for the units? What will the market pay? What can YOU get for the rentals? In theory, $1300 is your floor.
2. The other big variable is purchase price. You're already thinking about that.
3. Some of your numbers are off. Your closing costs are low, repair costs probably low, property taxes low (1.1% of purchase price/year), insurance high.
4. Point 3 above is true, but focus on the bottom line - the three that really matter are income, purchase price, and financing. Personally, I add a measure of my "hassle factor" to that list.
In San Diego, these are typical retail deal numbers right now.
Just to share what I do for quick filtering... I look at the GRM (gross rent multiplier = purchase price / current annual rent). If it's in a rental neighborhood I like and is less than 13, I look closer at it and see if I think I could get it down to 10 or 11 by year 2 with longer term upside. The GRM at listed price for this property is 13.75. At $350k, the GRM is 11.2.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
@Brandon Heath- SD prices give me sticker shock, too. As @Joe Villeneuve points out, offer only what will work for you. Trust the numbers, even as an OO plex hack.
As far as the offer goes, I never offer nice round numbers. $350,000 sounds like what it is, a balloon PFA. I also offer 3 options to my private sellers, catered to the pain point they have expressed. Tired landlords all the way across the county. Good for you for finding the pain point!
I would write up a letter of intent. A personable letter that shows your sincerity and gives 3 methods you would be willing to purchase the property:
1) Cash out through a loan. Say $326,457, closing in 60 days.
2) Seller-carry with $x down at market rates, $X per month headache-free cashflow $342,187 closing in 21 days.
3) Master lease with option to buy, 30 or 60 month term, $x per month, taking care of management and first $300 of repair expenses: $351,324, closing in 14 days.
All numbers and closing dates just examples, of course. A lot of sellers will forget they can choose option 4 - "no thanks"! When the broad-stroke ideas are agreed upon, write up a formal PSA. Good luck!
Real Estate Agent · San Diego, CA · Member since 2015 · 3 posts · 1 vote
11y
A similar property on the 800 block of the same street closed at $408K at the end of July. They were getting $1390 and $1425 for rent. Rents in San Diego are going up at a rapid rate - you would have a hard time finding a decent 2br place to rent for $1,000. There is no reason not to try for the $350K, especially if the place needs work and the Sellers are out of town with no agent. Food for thought.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y
Sounds like the area is rent growth and an appreciation type play.
The seller is likely looking for a buyer willing to gamble or a foreign investor that doesn't mind hardly any cash flow just to get funds into the states here.
@Brandon Heath- SD prices give me sticker shock, too. As @Joe Villeneuve points out, offer only what will work for you. Trust the numbers, even as an OO plex hack.
As far as the offer goes, I never offer nice round numbers. $350,000 sounds like what it is, a balloon PFA. I also offer 3 options to my private sellers, catered to the pain point they have expressed. Tired landlords all the way across the county. Good for you for finding the pain point!
I would write up a letter of intent. A personable letter that shows your sincerity and gives 3 methods you would be willing to purchase the property:
1) Cash out through a loan. Say $326,457, closing in 60 days.
2) Seller-carry with $x down at market rates, $X per month headache-free cashflow $342,187 closing in 21 days.
3) Master lease with option to buy, 30 or 60 month term, $x per month, taking care of management and first $300 of repair expenses: $351,324, closing in 14 days.
All numbers and closing dates just examples, of course. A lot of sellers will forget they can choose option 4 - "no thanks"! When the broad-stroke ideas are agreed upon, write up a formal PSA. Good luck!
Sounds like the area is rent growth and an appreciation type play.
The seller is likely looking for a buyer willing to gamble or a foreign investor that doesn't mind hardly any cash flow just to get funds into the states here.
Perhaps.
FWIW, this property actually looks to be in Escondido, which is a separate city about 35 miles from the urban center - if there's appreciation to be had, it's not gonna come from lack of developable land (which is the typical play in the urban/beach areas).
Why would you pay out $2,735.41 every month to lose money? I could buy 5 SFH in my area with that much/month and have a positive CF of over $4,000/month.
Joe I know you're a really smart guy and in most cases you would be right. but don't forget that this guy is in San Diego and for him it would probably be cheaper than what he is paying in rent and would build him some equity.
This is no model for future investing, granted, but it might actually be a better situation than he is in now and allow him to save some money. Just remember that his situation is not the same as a seasoned investor who is buying purely for profit, and this might be one of the better deals going in his target market.
He has to live somewhere, so why not live somewhere that someone else is paying half (or more) of the mortgage for him? I have no idea if this is a "good" deal for the area at any price but I would contend that it'd still be a better deal than renting.
Investor · Milford, CT · Member since 2015 · 200 posts · 69 votes
11y
Any deal can be a good deal if you get it for the right price, that two family is simply overpriced.
The trick is you need to find motivated sellers, or properties with issues that can be fixed. The sellers you found don't really need the money so they will sit tight until someone overpays for it.
In my area two family's are just as overpriced. For $2600 a month rent I'd be a buyer at $250k. I want equity and cash flow when I buy. Unless their is some sort of distress where they need to sell it tomorrow your not going to get them to lower it to that price.
This is one reason that I don't have one two family in my portfolio, in my area they either want $400k+ for something I'd be interested in but makes no money. Or $200k for a POS that's 100 years old and needs everything. One of these days I may run across one that's a buy but I have not yet.
Yeah I know it seems that paying $1000 month while living in one unit isn’t all that great. But you would cry if you saw what $1000 would bring you in the county! I agree that at this price there is no way to lie to myself and say it’s a good deal.
Yes I would say $1300 is the bare minimum. From what I see I think this could potentially pull in $1400 easily. Its in pretty bad shape. Been a little neglected. Any higher is possible but I would want to start dipping into “wishful thinking”.
I do still plan on pursuing the property just to gain experience with dealing with owners. I think this is a good starting point to learn a lot from without any long term regrets.
Im so new to this that I’m worried about offending someone with a low offer. I know this is an area of my personality that requires some growth and maturity. I can be overly nice to a fault. Your right though, not asking is the same as No, so might as well try.
As for the after repair value…… yeah that’s Newbie BS. I just thought I should put something there….. I honestly have no idea.
5 SFH's and do over 4000k/month……… Really Joe? I think your trying to tell me to Invest out of state without actually saying it, lol.
@Account Closed
I've never used the GRM to quickly filter out really really bad deals. When you stated that you would try to get the GRM down even further over 2 year, what types of things would help lower it? Are you referring to getting rid of PMI?
Im so new to this that I’m worried about offending someone with a low offer. I know this is an area of my personality that requires some growth and maturity. I can be overly nice to a fault. Your right though, not asking is the same as No, so might as well try.
I've never used the GRM to quickly filter out really really bad deals. When you stated that you would try to get the GRM down even further over 2 year, what types of things would help lower it? Are you referring to getting rid of PMI?
Should 10 be a good rule of thumb for our county?
First, don't look at it as offending someone. Think of it this way if it helps: You're giving them the gift of feedback on their price. If you put yourself in the seller's shoes, they just picked an asking price without really knowing what the market will do... they're a bit clueless too.
When making a dramatically lower offer, I usually do the following:
Call the seller or agent and ask some questions about the property. Tell them you're an investor looking for something that'll make sense. Be genuine. Make them like you. When they ask if you're interested, tell them you need to run some numbers and will get back to them.
When you talk to them, say something like: "I ran numbers and I just can't get above $X for the price. I know you're asking $Y. If you think it's worth while to keep talking or write up an offer, I'm happy to. Otherwise, thanks for your time."
Minimal time invested. You actually added value for the seller (gave them feedback). And, if the chips fall in your favor, they know you're willing to buy.
You'll see people refer to how it's a game of numbers. They're right. But, I can assure you that sometimes things work out well.
I've never used the GRM to quickly filter out really really bad deals. When you stated that you would try to get the GRM down even further over 2 year, what types of things would help lower it? Are you referring to getting rid of PMI?
Should 10 be a good rule of thumb for our county?
No. I mean I look for a property with <13 GRM. If I can convince myself that, once I start operating it, I can raise income or lower expenses within 12 months so it'd be a 10-11 GRM, then I consider it.
*Lots of generalizations in that statement, but I've found it to be a useful filter in our current market.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
@Brandon Heath "Rationalization" is the most expensive word in the REI vocabulary... followed closely by the action of "getting emotional". When you put the two together....you'll be introduced to a third word...."broke".
Gentlemen, the wisdom you share on here has made this a great thread. Thanks!
How does one use good sense when buying an Owner Occupied Investment property. Like others have said, you have to live somewhere. How do you factor that cost to live into your strategy? Due to my profession whatever I buy I know I will be moving within 2-3 years, so whatever it is must be able to cash flw upon moveout, or I sell. I cannot control where I move, so I may end up somewhere with high cost of living, and still pay to house my humungous family somewhere, and it won't be below a B class neighborhood.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
@Joel W.- mentioning me and the words wisdom along with my colleague @Joe Villeneuve in the same sentence is an honor. Thanks!
Obviously there is more in selecting your primary residence than just the return numbers and financial metrics.
A cost/benefit analysis on what I am paying in rent where I'm at now vs the what-if after I purchase an OO duplex instead + the appreciation potential of the area and class of asset. No war zones, but doesn't have to be on pill hill or the beach, either.
@Brandon Heath hasn't referenced what position he is in now as a renter, how much he pays or where it's location, so tough to really say if this is better for his situation or not. If he is paying $2k in rent/mo now and this will only cost him $1k/mo with a DP of $10k, then he gets his $ back in 10 months. All other things being equal, I'd say good buy. But who knows? Just the OP I guess. We're just guessers.
Hartsdale, NY · Member since 2015 · 874 posts · 218 votes
11y
Alright everyone is asking you/
What rent are you paying now? Are you in a 1 bedroom or 2 bedroom or 3 bedoom apartment now. Is this duplex you are considering a 2 bedroom apartment? Is it larger then your current apartment in square feet? What is the age of the duplex you are considering? Can you raise the rents on this new duplex? What is the cost of renovating this new duplex? Everyone has given you an opinion now you should give us the above details. Also how does the neighborhood of this duplex compare to your present neighborhood??
Hi BARB! So it's a little tricky with my current living situation. I rent a unit from a family friend and pay $750 (I know). They gave us an amazing deal to help us out while my wife was a full time student. We agreed on 2 years and we would leave after she got a job and we got settled ...... so fast forward 4 years and 1 child and needless to say... Its time to go. Everything is great with the landlords, they actually don't want us to leave. but the size of the unit just isn't working any longer. You could call it a 2 bedroom 1 bath..... but that would be stretching it. We are talking 400 sq ft. Neighborhood is an A.
The units on the duplex I referenced are both 2 and 1's. I know the property is about 1620 sq ft total but unsure of the individual sq ft. Duplexes are in a nice area but have been neglected greatly. They need a lot of work, maybe 25K (newb). I visited the property just a few hours ago and believe these are Slum lords who have let the property go. The photo from zillow is without a doubt 3-5 years old. So fixed up I could easily see anything from $1400 to $1500 being reasonable. I would call the the neighborhood a strong B
Professional Property Investor · Brisbane, Queensland · Member since 2015 · 165 posts · 160 votes
11y
@Brandon Heath Your issue as it appears to me Brandon is not what should you offer to buy this property but more about you learning how to create wealth. Making money is about using your assets to the best of your and their ability. This means understanding what investment really means, what investment options are open to you, how to manage money and taxation whilst balancing a risk reward ratio. All sounds very confusing, and it is until you learn how to do it.
The best advice I can share with you is this. Make your money work harder for you than you do for yourself. Money is to be employed to make more money. Investing is the art of deciding what jobs you want your money to perform. Do you want your money to grow, produce income, to stay safe? What is it you want your money to do for you?
If you put your money to work for you to produce income, then you can afford to live in better rental accommodation due to having more income. Assume you could make a net $1,000.00 per month extra income from your investments. Could you use that to pay your own rent? Of course you could. Or, perhaps reinvest that money each month to make more money. When you have enough money to buy your home outright then do so, and borrow back as much as possible to put it back to work for you.
When we are young we exchange our labour, our only real asset, for income by working for money. As we age we lose energy, we slow down and so want to work less. This is when we need our money to be really working for us. This is a natural transition of aging. However, many people do not learn how to make money work for them. The sad fact is that money and wealth creation are not taught at school. We do not learn how to make and manage money.
Brandon, it appears that you, like many other newbies here on BP have found a possible attraction to property investing and that is admirable. But property investing is only one part of the bigger picture of wealth creation. Please spend some time learning more about investing before making any decisions regarding your financial future. It is not about this particular deal being good or bad, it's about you understanding what you are doing in regards to your family's financial well being.
Here are some books I would recommend to help get you started. "The Richest Man in Babylon" by George, S Clason. "Rich Dad Poor Dad", by Robert Kyosaki and "The Cash Flow Quadrant", also by Kyosaki. These are basic books about the fundamentals of investing. The Richest Man In Babylon is probably the best book ever written about investing and wealth creation, in my humble opinion. The rules it teaches are the foundation of every successful investor that I could think of.
The journey of a thousand miles starts with the first step and your journey of financial independence, if that is what you want to achieve starts with your first steps in learning about money and how investing works. Your decision to discuss this possible deal here on BP is a good decision. You are seeking help and guidance and that is one of the key characteristics of a good student. The desire to learn how things are done. So congratulations on that. Now it is up to you. Do you want to really know what you are doing or do you want to act from naivety and ignorance and hope you get it right? I think not.
Enjoy the learning journey and good luck on the way!
Why would you pay out $2,735.41 every month to lose money? I could buy 5 SFH in my area with that much/month and have a positive CF of over $4,000/month.
Joe I know you're a really smart guy and in most cases you would be right. but don't forget that this guy is in San Diego and for him it would probably be cheaper than what he is paying in rent and would build him some equity.
This is no model for future investing, granted, but it might actually be a better situation than he is in now and allow him to save some money. Just remember that his situation is not the same as a seasoned investor who is buying purely for profit, and this might be one of the better deals going in his target market.
It may work OK, but it would also make him extremely exposed to market conditions. I agree with Joe. He would be depending on appreciation(and it would have to appreciate faster than he is losing money) just to come out ahead. And we haven't even factored in CAPX... If I were in that market I would not do buy and hold.
