I'm looking to buy my first-ever property, and I found a triplex in Philadelphia that I really like. I crunched some numbers (http://bit.ly/1Rhx4zW) using a modified template from @J Scott. The property is currently listed at $420,000. Based on my number crunching, I'm thinking that an offer of $370,000 with a 3% seller assist would work for me, which would be about 14.5% lower than what it's currently listed for. Does that sound like a somewhat reasonable offer? Any feedback that the good people of BP could give would be greatly, greatly appreciated.
Here are some assumptions I made:
- The three really important numbers are highlighted in blue at the bottom: net operating income (NOI), total cash flow, and total return.
- I'm treating this property as an expense rather than an investment (since I'll be living there), so I'm not overly concerned about obtaining positive cash flow while I live there.
- The one number that's still in question is the insurance - Liberty Mutual quoted me $3,500/year, which seems incredibly high to me. I'm going to shop around to see if I can find something better. If I can get that figure down to $1,500-$2,500, my cash flow would look a lot better.
- Until I actually take a look at the property, I'm assuming minimal up-front improvement costs ($2,000).
Also, I had a miscellaneous question - I did a bit of research and found that it's an estate sale. I found the obituary of the gentleman who owned the property and saw that the names of his surviving family members were listed. Do you think it would be inappropriate to reach out directly to a family member to try to get a number out of them that they'd feel comfortable selling at? I'd imagine that they'd want the property off their hands - one less thing for them to worry about.
Thank you, BP!
I would say... there is about a 5% chance a member of the family would give you a number. That number would not be supported by the other members of the family. There is a 35% chance they will hang up on you. Of course that leaves the 60% chance they will cuss you out until you eventually hang up.
By the way, when your parents die please post it here. We know you want to stop worrying about their home. Lots of people here will certainly give 70-80 percent of market value.
Michael Biggs Ouch - point taken. To be fair, it's been over a year since he passed, and they’ve been slashing the price by 15-20% every 4-6 months, so my thought was that there might be a chance of working something out. Guess I’ll throw that out the window - appreciate the feedback.
It's fairly hard to provide insight on the competitiveness of an offer/deal or the accuracy of your estimated numbers without any indication of the kind of market the property is located in.
Where is the property located? Would you consider the property to be in an a/b neighborhood? C/d? A little info there would really help me give you some better feedback.
As for your second question; Appropriateness aside, I'm not sure what the benefit to you would be. It may differ in your state/market, but in San Diego, and most of California I believe, the overwhelming majority of listing contracts are "exclusive listing agreements." Meaning that, should the property sell within the time frame agreed upon in the contract, the agent is entitled to their commission regardless of who procures the buyer.
@Kevin Fox Appreciate your feedback. To answer your question, I’d categorize the neighborhood as B.
i would not contact the family direct either ( unless non mls ) normally too difficult to get everyone to agree . i would not be afraid to make the offer , i have done far less , but obviosly , all markets are different . i normally usa a cap rate on everything , but since you will be living there it would be much less . also , keep in the back of your mind , its still an investment , so you will want a return at some point in the future !
@Kevin Fox Sorry, forgot to respond to the second part of your post. I’m not looking to cut out the realtor - the thought was more to have a conversation directly with the seller to learn more about the situation and perhaps try to work out a price that both parties would be comfortable with and letting our realtors close the sale from that point on.
@Peter Amour Very helpful feedback - thank you!
If the home is listed on the MLS, make an offer to the Realtor. Don't contact the family directly but also, don't feel bad about offering the price you want. Worst case, they say no and you move on.
I'm in Philadelphia also, love the real estate market here. A major concern i have is i think you need to give a budget for repairs and updating the units and systems ( plumbing, heating ect . . .) atleast 10%. With an estate sale know that they probably will go withb the offer that affords them them less hassle so i usualy have my offers written so that inspections are informational for me but i do have the ability to back out if we find something crazy. It's all in the presentation! I'd be more comfortable with 340-350 range, i always pay the $300 up front and have my plumber camera the sewer lines.
I worry about you getting positive cash flow even if you move out. If the 2br's only rent for $1,150 then the 1br should be somewhere around $850, right? I feel like repairs are low and you don't even have CapEx in there. Also, as @Brandon Turner recommends you should budget for PM even if you plan on doing it yourself.
A couple thoughts...like @Tim Butters said, you probably want to account for PM and CapEx up front. Assuming I did my sleuthing as well as I think I did, based on the current state of the property as well as the neighborhood, I would account for double the annual repairs you have listed.
On the other side of things, I think your rent estimates are fairly conservative and I'd think you could get $1,300+ for the 2BD units. This is my opinion and just something to consider rather than me encouraging you to change your projections.
Lastly, based on the listing (without having spoken to anyone), I see no reason not to come in with a low offer, particularly as it's an estate sale, it's been listed a long time, and there haven't been any price drops. For what it's worth, with the information I have now, I'd probably come in around $250k and try to negotiate them down to ~$300k (don't forget, you make your money when you buy). Beforehand, I'd reach out to the listing agent and set up an appointment. After you've viewed the property and tightened up your rehab estimate...ask if they've received any offers and try to dig for whatever information he will share. The listing agent is likely a court assigned real estate agent and just wants to get the property sold. The family might jump on any offer they receive at this point.