Trying to price rental - beginner help

Real Estate Deal Analysis & Advice
9yFollow

Trying to price rental - beginner help

Liz Cole
Camano Island, WA · Member since 2017 · 91 posts · 42 votes

I have a house that I have to sell and divide the money with some heirs. I'm also hoping this will give me an into a long wanted RE investment career start. The house is a 1240sq/3+2/den/carport/lg corner lot/RV access in fair starter neighborhood. I noticed that flippers are buying at about $130,000 or less and flipping at 180,000-195000$. Those houses were in pretty rough shape btw.

I believe this house comps comfortably at about $1050 mo/ rent. I can't imagine it would need more than $10K in fixups as a rental. (more if they gut the kitchen and bathrooms) but really only needs flooring in LR, hall and BR's. The rest is tile. New countertop in kitchen and new fixtures. That would ARV it at about $165,000. Typical ranch style with desert landscape.

So as a rental is $145,000 a decent selling price point?

When I use the calculator as a buyer so much depends on how they frame the deal... so I got confused how to figure it out as a seller.

Thanks much for your insight. (And I hope I'm not breaking any rules by asking. I've been mulling around watching videos and reading post and I'm lacking the confidence on moving forward). I just want to know from an experienced perspective on both sides if I'm in the right ballpark or not. 

0Reply
12 views

Most Popular Reply

Devin Deswert
Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes
9y
Not sure why you are looking for a investor to purchase the home. Highest value to you will come from people wanting to purchase as a live in the home. If you want to maximize your cut then get a Realtor even after fees it should net you more then selling to a investor. And flooring allowance? Let the agent shoot that out of the sky, your already giving up gross just turn it over to a professional that's out for your interest.
3Reply
See this reply in the discussion

25 Replies

Jump to latestLatest
  • Kevin Siedlecki
    Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Liz Cole - It doesn't really matter what the buyer's plan for the purchase is; your property's value is based on market comps. Based on what you're saying, $145,000 looks like a pretty decent price. It doesn't pass my tests for a rental purchase, but that doesn't matter. You want to price an SFR to sell to anyone, investor or owner-occupant. If newly updated properties are going for $180k+, then $145k seems like a good price to me.

    1Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    Thanks 

    @Kevin Siedlecki . What I wanted to do is price it so I could sell w/o a Realtor. Those updated properties are total rehabs from what I can see. The house is in another State so I'm going off what I know about the house and area and what I can see from the MLS and RE sites.

    When I figured it out as a buyer to use as a rental, I came up with $200/mo income. Since I want to start buying once I sell this one, it's like a mini-real-life lesson for me. 

    So can you share how you, (as an investor) looked at it? 

    Thanks again, LIz

    0Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Liz Cole

    was the house previously being rented out, or was someone living there?

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    It was owner occupied. The neighborhood is a typical starter or rental area though. @Christopher Phillips 

    0Reply
  • Kevin Siedlecki
    Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Liz Cole - 

    Sure- he's what I see as an investor.

    $145,000 purchase price 

    Rent $1050/mo

    Down Payment (25%) = $36,250

    Rehab = $10,000

    Acquisition = call it an even $50,000 after closing costs 

    Mortgage Payment = $590

    Taxes = Let's assume taxes are low $50/mo

    Insurance = $75 ish

    Vacancy (10%) = $105

    CapEx (10%) = $105

    Maintenance (10%) = $105

    So with $1050/mo coming in, subtract all those expenses, you're left with $20 per month. Since a lot of those numbers are guesses, $20 is nothing. Combined with the fact that $1050 gross rent makes CapEx and Maintenance expense estimates low (because it costs the same to replace a furnace or have the lawn mowed whether you pay $145k or $500k for the property), and this house is likely to cost money month-to-month. On a $50k acquisition cost, I would want at least $500-600 cash flow after all expenses.

    1Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Liz Cole

    If it was owner occupied and you don't plan on putting tenants in it before selling, then it's just a regular sale. you need to get comps for recent sales for similar condition homes in the area.

    Like @Kevin Siedlecki, you can't sell it based on what you think someone else will want to do with it.

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    @Christopher Phillips  It was owner occupied. She kept it maintained but never updated. 

    0Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Liz Cole the buyer will most likely be someone looking for a starter home.

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    @Kevin Siedlecki okay well see, I would have totally messed that up. I'm surprised at the monthly capEx and maintenance figures though. I thought the video's were estimating at lower amounts. (And the taxes are actually about $75/mo) ..

    0Reply
  • Kevin Siedlecki
    Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Liz Cole - 10% is a pretty low estimate for CapEx, and when you're dealing with a loss gross-rent building like $1050, that's a risky assumption. You're probably going to spend $100 month or more on maintenance, too. What does it cost to get the lawn cut, get the snow plowed, walks shoveled? How about the water/sewer bill. I also realize I forgot management, which is another 8-10%. In the end, there's no much that could convince me to take on a property with only $1050 in gross rent. Maybe if I got it for free, but that's still a maybe!

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    Okay

    @Christopher Phillips Thanks much. After looking at what Kevin said, I can see why. I clearly didn't calculate the figures correctly. I did calculate the rent for rentals in the area and values based on comps, but evidently to promote as a rental investment in the paper would need to adjust. It's a great way to learn though since I inherited the property!  I see it as my "in" to finally start investing. 

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    @Kevin Siedlecki Okay so that is likely the difference. It's desert landscape that would need weeds pulled about twice a year so I calculated $25/mo landscaping. Outside of Phx, AZ so hopefully no snow issues. lol. Sewer is a septic that is in great shape, didn't calculate water or trash fees. But I did calculate 9% for management fees. Also took into consideration the roof is less than 5 and the heat pump (air/heat unit) is under 10. Unlikely foundation issues due to area, etc. so I basically calculated the monthly maintenance at 50$/mo. 

    But if I put it up as a starter home with minor fixup needed, then I definitely need to go through a realtor and that will eat up $10K. and I will probably need to offer a flooring allowance. 

    And makes me nervous to move forward with my own investing since I got this one so far off. :( Clearly I need to do some more studying! Thank you. I really appreciate the time. 

    0Reply
  • Kevin Siedlecki
    Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Liz Cole - I wrote a 4-part blog series about my first purchase that might help! Take a look:

    https://www.biggerpockets.com/blogs/6815-a-few-yea...

    Hope it helps!

    0Reply
  • Loren Clive
    Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
    9y

    @Liz Cole I would at least meet with a realtor so you can get the comps and their opinion of market value. A good realtor will more than earn their fee in getting you top dollar for the house and facilitating the sale. Moreover, if you do it yourself, you're going to end up doing a lot of unpaid work for your family members, and maybe put yourself in the middle of any potential conflicts. Just a suggestion.

    2Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    Thank you for your input @Loren Clive .. The house was left to me but I decided to sell and split the profit since the Estate was broke when my mom passed and my siblings didn't get anything. I was just hoping to do this one myself because there are too many of us. 

    This house only needs a little work and all the flips being sold are selling for $125-130,000. and they're pretty trashed and flipping for $180+. ANYWAY, I thought I was being conservative with my numbers...

    Obviously, if I sell as a starter that won't work. I thought my price point for the area and comps was a good rental investor deal. 

    I do appreciate all the input. I just need to keep reading and watching videos. :)

    Liz

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Focus on the sold comps within 1/10th of a mile in the last 6 months.  That's a good place to get an accurate resale number.

    0Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Liz Cole

    Couple things you can do. Sell it in the current condition, or put in the money to upgrade it.

    Any investors that might be interested in the home are going to be looking for heavy discounts for whatever scenario they are interested in.

    If you get it into move in ready shape, you'll stand a better chance at attracting buyers looking for home that they don't have to do work on.

    1Reply
  • Devin Deswert
    Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes
    9y
    Not sure why you are looking for a investor to purchase the home. Highest value to you will come from people wanting to purchase as a live in the home. If you want to maximize your cut then get a Realtor even after fees it should net you more then selling to a investor. And flooring allowance? Let the agent shoot that out of the sky, your already giving up gross just turn it over to a professional that's out for your interest.
    3Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    The value of something is only what someone is willing to pay.  The key is the comps.  What others have actually paid, not listed or for sale, but something some actually paid.

    SFH are tough, they have 2 markets.

    1,  Home owners 

    2 investors 

    The purchaser of any given asset can bounce back between either, thus potential discrepancies in the the cost.  High cost areas do not typically make great investments.  Homeowners are willing to pay more.  Homes in poor condition are typically not purchased by homeowners, making them worth less. A great fit for investors.

    In commercial Realestate (4+ units) the costs is less subjective and more a function of  the income the asset generates.  There are exceptions due to market conditions, economy availability of money,etc.  

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Liz Cole I think the easiest way to determine value would be to have 2-3 realtors walk through the house and give you a value. Tell them you want an as-is price that would sell the property within a week. They will give you their low-retail price. Either take the average or lowest of the three. If you chose to not use a realtor, then just take 6% off the price and pay out your siblings accordingly. You can show your siblings what a third party valued the property.

    0Reply
  • William KwongPro Member
    Real Estate Agent · Jersey City, NJ · Member since 2015 · 110 posts · 53 votes
    9y

    @Liz Cole 

    Hi Liz, to piggyback off everyone else. I think your end buyer would most likely be best as a starter family as opposed to an investor. If Investors are looking at this property from a flip point of view, they will probably shoot for a lower price than what you proposed as your sell price.

    If doing a quick calculation assuming they're a cash buyer. They want to buy it at 70% of ARV - (minus) Repair estimate. That could be as low as 120K or less depending on how much they want to stretch profit margins.

    From a rental perspective, not sure if it would compute well with 1050/mth.  I ran similar numbers to @Kevin Siedlecki and his seems spot on.

    I think putting a little sweat equity and finding a way to fund those renovations will allow you to get top dollar for it. If it only needs the 10k and doing those renovations making the value similar to the comps that sold for 180k+. Then that should up your value enough to make it an excellent starter home and get the best bang for your buck. This seems like the perfect way to experience your first flip as well. You already have the property, just renovate and sell. You'll have experienced your first rehab and will be ready for project number two with one already under your belt. Not sure if that's feasible with all the different parties with your situation but seems like your best bet from my perspective.

    Good Luck!!!

    1Reply
  • Loren Clive
    Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
    9y

    @Devin Deswert and others. That's totally what I was getting at. Investors are not the top-dollar buyers!

    Liz, why don't you just fix the home up yourself and then sell it? Pass the hat to your family members who will benefit from the sale to finance. Or keep it as a long-term rental? 

    If you're looking to get into real estate investment, you're already there! No need to sell a house that you (I assume) already own free and clear. 

    Once you get it fixed up, you can get a heloc on your equity and buy another house. 

    0Reply
  • Jacob Pereira
    Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
    9y

    A lot of good advice here. If I were you, I would go ahead and get the realtor, though. I see some people above suggesting a realtor costs 6%, but really he/she costs you 3%, because the buyer's agent gets the other 3%. I don't think anyone on here would suggest you try selling only to buyers who do not have representation. In other words, not getting a realtor will save you less than $5k, assuming you have priced your house correctly, were able to find the right buyer without at least paying for some kind of discount MLS service, and took care of all the paperwork properly. I definitely sympathize with your desire to cut out the middle man, but I suspect that at best you'll earn yourself a low four-figure savings for many hours worked, and at worst sell for significantly under the 3% a realtor costs you.

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    9y

    Thanks for the input everyone. I was evidently not very clear in my original post.  I knew I was not interested in selling as a flip. 

    I'm 1700 miles from the property and I don't have money to do a full remodel to the level of a "flip" - flooring, kitchen and bathrooms since everything in those rooms is dark oak. The area flippers are buying trashed houses for $120-130k and totally remodeling and selling w/i 30 days on market. (The 3 I saw were slightly bigger than mine). 

    I thought "rental investor" because overall the house has been well-cared, has a great floorplan, and with some new flooring, and a few very minor things it's a cute house as a rental )for a blue-collar family. I used the calculator on this site and another one AND I thought if I priced it accordingly I could do some local advertising and forego the commission fee. 

    I thought "rental investor" because I thought that meant more moderately discounted (based on the condition of the house) not the rock bottom price as a flipper would want and I wouldn't have to worry about totally remodeling a house for some cute little starter family. 

    I thought it was more of a "fit" for me today. 

    I had three realtors go through and did look at the comps. The only reason I paid any attention to what is currently for sale is to compare what is on the market for under $175K. for a similar house.  

    I do understand the benefits of a realtor. 

    So what I know is: I don't know anything. :/

    A do appreciate the feedback. 

    Liz

    0Reply
  • Liz Cole
    OP
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    8y

    Update: I had three realtors go through and two of them refused to give me what they would list the house for. One said $130K which is what the trashed houses were selling for. I did some very minor work on the house, called another realtor and told him I would list at $160K, which he was not happy with but I told him if we didn't have an offer in two weeks, I would reduce. The Zillow clicks first day were over 200 and I got 3 offers the first two days and accepted at full price with no conditions except the financial qualification, and closed 30 days later. In the end, I think the realtors were looking for a fast sale from an out of town seller they viewed as just wanting to get rid of the house because of the other heirs.. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free