Good deal or bad deal??

Question

Good morning friends at BP. I have a question on a deal I'm currently looking at, I'm hoping someone can help me figure out weather this would be a good deal or not. SFH cost is 50k I would like to offer 40k, I'm looking to purchase with a conventional mortgage. Rent will be 700 a month insurance is 850-900 a year give or take. Taxes are around 950 more or less. I may have to do some cosmetic work to the home estimating 5k. I've noticed these homes in Florida don't appreciate as well as other markets but I'm sure there will be some appreciation. Please provide some feedback. Thank you all.

David Midgett · Answer

@Wendy Gomez, the sweet spot for appreciation right now in Ocala is the $90k-$120k house.

Typically, our buyer is looking for a 3/2/2 built from 2004-2008, in the 1,200-1,600 square foot range. That's the home a typical FHA/USDA/VA borrower is looking for (which is >90% of the current financing market here locally), and that home has gone up 12-15% per year for each of the past three years.... which is pretty nice appreciation.

Get below that range, however, and you are likely talking about a house that won't pass lender inspections, so you are eliminating most of your non-investor buyers. And the house you've mentioned is either much smaller or significantly older than our target (based on the taxes).

I agree with @Andrew Davis and @Gino Barbaro -- a house in the $50k range is not a great candidate for appreciation many places, and certainly not in Ocala.

Use the cash flow numbers to determine if it is a good buy-and-hold candidate, but don't count on unloading that house anytime in the near future.

Gino Barbaro · Answer

@Wendy Gomez

Hi Wendy

The numbers appear to work. Have you looked at the neighborhood.  Houses in this price range don't appreciate much in any market.  If you are investing for cash flow, then it's a good place to start

Gino

Wendy Gomez · Answer

@Andrew Davis thank you so much for your advice and especially for taking the time out to reply.  You mentioned the areas that are appreciating, do you know how I can find out if the Ocala area is appreciating. I've done some google researches and found that it is appreciating at a rate of 2.9% or so. but I feel like that is only true of a specific type of homes certainly not the 30k investment homes I have acquired. 
 
 
Andrew Davis 
 
Andrew Davis

Andrew Davis

Nikia Johnson · Answer

Hello Wendy,

I see you are in New York so I feel inclinded to ask about the 5K for rehab are you flying down to take care of the repairs? On a 40k home only having to put in 5k seems pretty low unless maybe this is a condo or manufactured home. You also mention using a conventional loan most lenders will not finance under 50k so it would need to appraise at 62.5 @ 80% LTV for it to work. Just some things to ponder I  wish you much success!

Andrew Davis · Answer

Hey @Wendy Gomez, great advice from @Patrick Liska.  There are some great tools here on BP to help you evaluate deals.

Florida is actually appreciating very well.

We took a hit just like everyone else, but there are multiple markets slated for strong & consistent growth.  We're attracting a lot of economic development here in Orlando, and also in Tampa, Jacksonville, Ft. Lauderdale and Miami.  You should check out this thread as well for further info and discussion:

https://www.biggerpockets.com/forums/77/topics/291...

I would submit that homes in the $40-50k range don't appreciate well, period.  So it goes back to the cash flow vs. appreciation debate.  I'm currently looking almost purely for cash flow.  If a property meets my cash flow criteria, I'm going for it.  When I hit a certain number of properties and passive income, I'll probably adjust a bit.

Hope that helps!

Patrick Liska · Answer

Wendy,

start here: https://www.biggerpockets.com/buy-and-hold-calcula...

with 20% down your mortgage payments will be about $150/ month, the way it looks your expenses will be about $500 / month if you figure in management. you will also have lawn care and do not forget to allow for CapEx. it seems real close, but run the numbers through the calculator on the site to see.

Good deal or bad deal??

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