Help analyzing a deal

17 Replies

@John Turner , basically, I don't believe those figures. If it seems too good...

Who is paying $1000/m rent for a home that's only worth $29k? 

Forget the $50k ARV, because it's supposed to be already almost Turnkey (ie. should already be worth more than $40k). To me, this means that the Seller is selling because they don't really believe their own hype!

If it was as good as the figures suggest, the Seller should not be needing to search for Buyers who have no credit or savings.

Lenders must see these sort of exaggerated claims all the time - and should not be blamed for sending the borrower-wannabes packing.

But hey, go look at it. Do your comps research, including rents. Talk to the neighbors. If you are a beginner, DON'T allow yourself to be rushed. Then post your research findings back here. Cheers...

Lenders traditionally wont do 100% financing regardless of the ARV.

Also I cant imagine why someone would be selling a place for $29k range that rents that high!!!  

Something doesnt sit well on this one. Good luck

Originally posted by @Brent Coombs :

@John Turner, basically, I don't believe those figures. If it seems too good...

Who is paying $1000/m rent for a home that's only worth $29k? 

Forget the $50k ARV, because it's supposed to be already almost Turnkey (ie. should already be worth more than $40k). To me, this means that the Seller is selling because they don't really believe their own hype!

If it was as good as the figures suggest, the Seller should not be needing to search for Buyers who have no credit or savings.

Lenders must see these sort of exaggerated claims all the time - and should not be blamed for sending the borrower-wannabes packing.

But hey, go look at it. Do your comps research, including rents. Talk to the neighbors. If you are a beginner, DON'T allow yourself to be rushed. Then post your research findings back here. Cheers...

Thanks @Brent Coombs, I appreciate the input. It is a duplex. I looked at comps in the area and the ARV does appear to be accurate. The renovation costs are according to the seller so that may be where the discrepancy is. I am aware the ARV could be inflated and the reno costs could be underestimated.

I will be utilizing a turnkey operator/property manager out of Cleveland to give me some advice. 

I'll be calling about the numbers tomorrow.

Originally posted by @Curt Davis :

Lenders traditionally wont do 100% financing regardless of the ARV.

Also I cant imagine why someone would be selling a place for $29k range that rents that high!!!  

Something doesnt sit well on this one. Good luck

Hi @Curt Davis,

Thanks for looking this over.  I am also looking in Memphis and have been reviewing your youtube videos and your website.  You have good reviews and mentions on here.  I hope we can touch base with you some time.

In Cleveland right now, to get that much rent the property is going to need some work and or be in a tougher neighborhood.

Lenders will want at min. 25% down.

@John Turner You are getting good council. These guys know the Cleveland market well.

The banks will definitely require 25% down minimum and this will only be for the purchase price. All rehab money will need to come from your pocket. It isn't necessarily bad however to show numbers representing 100% financing if you are intending to refi your cash out at a later date once the 'seasoning' period has been satisfied.

I agree with @Brent Coombs . These numbers are full of holes. Use some common sense and don't get lured in by numbers that are too good to be true. 1. No turn key property is going to sell for $30K below market value. In this case, the ARV would be market value. Why would the seller be willing to sell at such a discount? 2. Unless this was a MF, which it doesn't appear to be, I seriously doubt that a $50K property will rent for $1,100. That makes no sense. 3. 2% vacancy and 2% repair factor are absurd assumptions and no way reality for any class of property. As far as financing, no conventional lender will lend on ARV. Lenders use the lesser of the purchase price or appraised value.

@John Turner

As a Canadian, you'll be hard pressed to find ANY lender willing to finance you on a property with such a low value, let alone 100% of it.  Generally, lenders will not finance "foreign nationals" on properties values at less than 100K, particularly in Cleveland.

However, there are a few that will lend on properties at $50K and over, but the property must have an occupancy permit (liveable) with tenants or leases in place.  They typically want 35%-50% down, and the rates are higher.  

Originally posted by @Mike D'Arrigo :

I agree with @Brent Coombs . These numbers are full of holes. Use some common sense and don't get lured in by numbers that are too good to be true. 1. No turn key property is going to sell for $30K below market value. In this case, the ARV would be market value. Why would the seller be willing to sell at such a discount? 2. Unless this was a MF, which it doesn't appear to be, I seriously doubt that a $50K property will rent for $1,100. That makes no sense. 3. 2% vacancy and 2% repair factor are absurd assumptions and no way reality for any class of property. As far as financing, no conventional lender will lend on ARV. Lenders use the lesser of the purchase price or appraised value.

 Thanks for the advise @Mike D'Arrigo. It is a duplex. 

Originally posted by @Chad U. :

@John Turner

As a Canadian, you'll be hard pressed to find ANY lender willing to finance you on a property with such a low value, let alone 100% of it.  Generally, lenders will not finance "foreign nationals" on properties values at less than 100K, particularly in Cleveland.

However, there are a few that will lend on properties at $50K and over, but the property must have an occupancy permit (liveable) with tenants or leases in place.  They typically want 35%-50% down, and the rates are higher.  

 Thanks for your advise as well @Chad Urbshott. I have been researching financing since May of this year and Canadians definitely have some challenges. TD and RBC do financing in the states with a reasonable rate and 20 to 25 % down depending on the use of the property. TD does not have a minimum loan amount. 

@John Turner  keep in mind a 500 dollar a month renter is a very tough renter in the US management wise.. very transient generally. 

If you want to buy in the US.. and like your profile described maybe use the property or travel there. you may want to consider Orlando  Or Phx or Vegas those types of areas were you can have some fun while your there.. plus its warm.. I doubt you need anymore schooling on how to live in the cold  :)

Most of the folks I talk to through the last 10 to 15 years  who bought low end duplex's in major mid western metro areas got KILLED financially.

@Mike D'Arrigo   One of my Aussie investors bought one in Indy.. after rehabbing it three times because it got totally trashed each time he finally sold it and lost about 60k on the deal.  super low end in the US is NOT appropriate for out of area investors in my ever to be it humble opinion. You will never achieve the cash flow you think.

Originally posted by @Jay Hinrichs :

@John Turner  keep in mind a 500 dollar a month renter is a very tough renter in the US management wise.. very transient generally. 

If you want to buy in the US.. and like your profile described maybe use the property or travel there. you may want to consider Orlando  Or Phx or Vegas those types of areas were you can have some fun while your there.. plus its warm.. I doubt you need anymore schooling on how to live in the cold  :)

Most of the folks I talk to through the last 10 to 15 years  who bought low end duplex's in major mid western metro areas got KILLED financially.

@Mike D'Arrigo   One of my Aussie investors bought one in Indy.. after rehabbing it three times because it got totally trashed each time he finally sold it and lost about 60k on the deal.  super low end in the US is NOT appropriate for out of area investors in my ever to be it humble opinion. You will never achieve the cash flow you think.

 @Jay Hinricha

Thanks for the input. I am looking at investment and vacation rentals. I hope to add both to my profile.

I am learning so much from here and I really appreciate the input from a long term investor such as yourself. There are so many pitfalls being an out of state investor. I'm still reading books and learning from people on BP.  I have already learned that taking good advice to heart and making good connections with the right people are as important as finding the right deal.

Originally posted by @John Turner :

Most of the folks I talk to through the last 10 to 15 years  who bought low end duplex's in major mid western metro areas got KILLED financially.

John--I agree. I know Indianapolis well. We sell turn keys there but low end properties, especially duplexes are extremely challenging for the non local investor. @jayhinrichs talked about this on my show recently.