QUICK OFFER HELP: $660,000 Offer in Brentwood, LA

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QUICK OFFER HELP: $660,000 Offer in Brentwood, LA

Conor Murphy
Culver City, CA · Member since 2015 · 11 posts · 0 votes

Here's the deal:  I'm writing this quickly because the deadline for an offer is tomorrow at 5pm. Please bare with the haste.

I am planning on putting an offer out tonight for what seems like a steal. The condo is a two bedroom, 2 bath, in Brentwood, Los Angeles, asking for $620,000, but because counters have already begun I am going to make an offer of $660,000. The condo is in pretty good condition, but I would still want to put about $40,000 of work into it to make it optimal by Brentwood standards (Re-do the kitchen, and spruce up a few other things). 

I have $240,000 saved up, but I'm an actor so my income is never guaranteed and I don't have secure income moving forward. It's all spontaneous. I want to do an interest only loan at 4% with 10% down, with my lender saying that would put my mortgage estimate around $2,000 and the HOA is $315. I also have a non-occupant co-borrower that helped me secure the loan. Currently, the residence is occupied but the tenants are "planning on leaving in August" with a currently rental rate of $2,900.

WHAT DO YOU THINK? I appreciate any and all questions and/or analysis. 

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Ian R.
Real Estate Investor · San Antonio, TX · Member since 2016 · 143 posts · 167 votes
9y

@Conor Murphy Please don't take this the wrong way but it appears to me that these are all questions that your agent should be able to answer relatively easily.  Real estate is local so your agent should be your primary counselor and advocate for educating you on how things work in your local market in LA, especially in regards to local tenant laws.  I find it very concerning that it appears that your agent is apparently either unwilling or incapable of performing his fiduciary duties to you.  If I were you, I'd get another agent.

And to answer your initial question, yes, you can cancel your contract within your option period and receive your EMD back. But again, these are basics that your agent should already be talking to you about.

Best of luck

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Conor Murphy

    What are you going to do with the property once the renters are out? It would be difficult to get them to agree to work during their tenancy, and $2900 rent barely covers the $2k loan and $315 HOA.

    What is market rent in the area? (Clearly I know nothing about your market)

    Where are you getting a 4% interest only loan? If you've got a private lender that you know well, you might be able to do this. If you found someone who is offering these rates, be very leery. That's less than bank rates right now. 

    Can you afford this payment if the renters stop paying?

    If this were my market, it would be easy to say no. These numbers don't work for my plan. I'm not familiar with Brentwood, except the whole OJ thing. What is your end plan? Are you going to flip it? Keep it as a rental?

    [email protected]Podcast Guest on Show #261
    BiggerPockets
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  • Conor Murphy
    OP
    Culver City, CA · Member since 2015 · 11 posts · 0 votes
    9y

    Thanks for your hasty reply Mindy. When the renters are out I plan on re-doing the kitchen and making one of the bathrooms into a true master bath. I could realistically charge between 3,300-3,600 after renovations. 

    The loan is from a private lender who I know fairly well, but why do you think I should be leery of that?

    I can afford it for a little while based on my savings of $240,000, but like I said, my income is never guaranteed.

    I eventually want to simultaneously put it back on the market, as well as ask for the higher rental price after renovations.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    If $660k is a steal, what should the Seller really be asking if they knew what they were doing?

    At just 0.5%/m GROSS rent return, I don't see why Investors would be at all interested in it, except if the horribly expensive price is thought to soon/already be worth an even more horrible price!...

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  • Conor Murphy
    OP
    Culver City, CA · Member since 2015 · 11 posts · 0 votes
    9y

    It's probably worth around $700,000 already before renovations. You have to consider that Brentwood is one of the most reliable markets in America and that it's LA, so everything is expensive here.

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  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Brent Coombs:

    If $660k is a steal, what should the Seller really be asking if they knew what they were doing?

    At just 0.5%/m GROSS rent return, I don't see why Investors would be at all interested in it, except if the horribly expensive price is thought to soon/already be worth an even more horrible price!...

    I hear ya, but if you can turn around and sell it the day after you close for $770k without the market doing a thing, then it is still a steal regardless of what it rents for. How do you think flippers make money? I personally wouldn't buy it without built in equity above my down payment, but that doesn't mean that others haven't made a fantastic return on it over the decades by buying and holding it. A horrible price becoming more horrible is how it got to $660k over the decades in the first place. CA has been "horribly over priced" for decades in a row. Supply and demand, my friend.

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y

    @David Faulkner, exactly! (Which is why I included the words "except if"). Cheers...

    1Reply
  • Vince Szabo
    Banker · Sugar Land, TX · Member since 2008 · 12 posts · 4 votes
    9y

    "I am planning on putting an offer out tonight for what seems like a steal"

    Don't do it!   It's not a steal. 

    Sleep well and call me in the morning.

    0Reply
  • Conor Murphy
    OP
    Culver City, CA · Member since 2015 · 11 posts · 0 votes
    9y

    elaborate

    0Reply
  • Lee RipmaPro Member
    Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
    9y
    I would be most weary of the tenants. You need a guarantee that they will leave and when they will leave. I would have them removed as part of the deal or you may never get rid of them. If you want to let them stay do 29 day rentals to them through Airbnb. Renters have crazy rights in LA. If you can get rid of the renters I would go for this. But I won't buy in LA because of the high prices and the tenant rights. The monthly rental price you can get is probably a lot higher after than you have projected, but just be really careful with those tenant rights!
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  • Conor Murphy
    OP
    Culver City, CA · Member since 2015 · 11 posts · 0 votes
    9y

    Great input. Also, since I don't have much time here, but the deadline is tomorrow, what can you wonderful people tell me about contingencies? I can back out within 21 days correct?

    Also, my agent likes the deal so much that he wants to personally go in on it 50/50 with me. Is that suspect?

    0Reply
  • Kiersten Vance
    Real Estate Agent · Redlands, CA · Member since 2016 · 253 posts · 115 votes
    9y
    Hello Conor, I wouldn't go in with your agent unless you know them really well. It is suspect that he would want to split the deal with you instead of doing it himself (again unless you are good friends already). Sounds like if they have a deadline for offers, they are planning to get a lot of them and have a bidding war. It's usually not a steal once people start bidding up the property. Has your agent not explained your contingency periods? Those can vary in the contract and for a competitive offer, I would suggest putting fewer contingencies but you have to know your risk. Make sure you feel comfortable and confident in your agent before making offers.
    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Conor Murphy:

    Great input. Also, since I don't have much time here, but the deadline is tomorrow, what can you wonderful people tell me about contingencies? I can back out within 21 days correct?

    Also, my agent likes the deal so much that he wants to personally go in on it 50/50 with me. Is that suspect?

    The most obvious contingency if the tenant is of concern is that the property will be delivered vacant at COE, and if it is not vacant, don't close. However, it is possible this won't fly if there are multiple offers and they don't have that contingency.

    0Reply
  • Conor Murphy
    OP
    Culver City, CA · Member since 2015 · 11 posts · 0 votes
    9y

    my question is, if I make an offer, am I legally bound in any way yet or do I legitimately have the escrow period to back out?

    0Reply
  • David Grabiner
    Investor · Chattanooga, TN · Member since 2016 · 146 posts · 108 votes
    9y
    Originally posted by @Conor Murphy:

    my question is, if I make an offer, am I legally bound in any way yet or do I legitimately have the escrow period to back out?

     It depends what your contingencies in your offer say. Really your relator should be the one telling you about what contingencies he can put in the offer but I will tell you a couple that are pretty standard that can be used to back out.

    Inspection and due diligence period contingency, 15 days or whatever you want really during which time you can inspect the property and if you find something you can back out or reopen negotiations with the seller to reduce the price or fix the problems.  You can only use this contingency to back out if you do it within the time frame.  Once the period is done  you can't use it. 

    Appraisal and financing contingency, this basically states that your purchase is contingent on the property appraising and you getting the financing to complete the deal. If you can't get financing then you can get out of the deal and get your earnest money back.

    A note on your realtor he might be wanting in on the deal because your getting money from a private lender and he sees it as an opportunity to get a portion of a property without putting much money down. But if he hasn't talked to you about contingencies how good of a realtor is he?

    Lastly I don't think it is a deal but I'm not a CA investor I know you all do it differently out there were most people just invest for appreciation. I will say this, if you get it for 660K then that is what it is worth it is not worth 700K if it was that would be the purchase price especially in a hot market with a multi bid situation.

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  • Ian R.
    Real Estate Investor · San Antonio, TX · Member since 2016 · 143 posts · 167 votes
    9y

    @Conor Murphy Please don't take this the wrong way but it appears to me that these are all questions that your agent should be able to answer relatively easily.  Real estate is local so your agent should be your primary counselor and advocate for educating you on how things work in your local market in LA, especially in regards to local tenant laws.  I find it very concerning that it appears that your agent is apparently either unwilling or incapable of performing his fiduciary duties to you.  If I were you, I'd get another agent.

    And to answer your initial question, yes, you can cancel your contract within your option period and receive your EMD back. But again, these are basics that your agent should already be talking to you about.

    Best of luck

    3Reply
  • Andrey Y.
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    9y
    Originally posted by @Brent Coombs:

    If $660k is a steal, what should the Seller really be asking if they knew what they were doing?

    At just 0.5%/m GROSS rent return, I don't see why Investors would be at all interested in it, except if the horribly expensive price is thought to soon/already be worth an even more horrible price!...

     A lower rent to value ratio means a more desirable property and a more profitable market. (Intelligent) investors want that.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    9y
    Originally posted by @Andrey Y.:
    Originally posted by @Brent Coombs:

    If $660k is a steal, what should the Seller really be asking if they knew what they were doing?

    At just 0.5%/m GROSS rent return, I don't see why Investors would be at all interested in it, except if the horribly expensive price is thought to soon/already be worth an even more horrible price!...

     A lower rent to value ratio means a more desirable property and a more profitable market. (Intelligent) investors want that.

    That's fine. But I STILL only recommend "steals" if they're inside a "0.5% Rule" market...

    0Reply
  • Conor Murphy
    OP
    Culver City, CA · Member since 2015 · 11 posts · 0 votes
    9y

    Thank you all for your help. I really appreciate the honest and thorough feedback and for various reasons I've decided against making the offer. I would love to connect with someone who is well versed in the LA market, as it's a completely different game from anywhere else. While I have done a lot of research on my own, I definitely could use some mentorship from a seasoned vet in this market. If anyone would be willing to connect me with someone who fits that criteria, please let me know.

    Thanks again.

    Conor

    0Reply
  • Alex C.
    Flipper/Rehabber · Los Angeles, CA · Member since 2017 · 66 posts · 35 votes
    9y

    @Conor Murphy

    I have some concerns about your financing, I have an extensive background in mortgage lending and I haven't heard of an interest only 90% LTV condo loan @4% rate. Are you certain of this loan option going through? Please do extra due diligence into the lender promising this type of loan, it's not easy especially given the type of work you do is not W2 standard salaried type of income. I do like that you'll have plenty of reserves after closing for emergencies like having to evict although knowing the type of tenants on the Westside are less likely to be problems then B and C neighborhoods and work you still have to do. $2900 might actually still be a good deal from their eyes but use discretion inheriting tenants using has it's challenges. I know Brentwood and hopefully the unit is a decent square footage (1200+ or more) so I have no problems with the purchase price. Also if you decide to move in or not and the tenants move out as planned, you can definitely gross 2500 per room on Airbnb or close to 5500 gross. I've successfully been making money on Airbnb platform on properties I own and don't own for 3 years now in the LA market. Good luck Conor.

    0Reply
  • Justin B.
    Investor · Gaithersburg, MD · Member since 2013 · 659 posts · 441 votes
    9y

    I don't know the area, but the numbers just don't seem like they work.  Even if your mortgage is $2k, you have taxes, insurance, and maintenance, which can easily eat up the rest.  If you're buying to hold, spending that amount of money for such little cash flow doesn't make sense to me.  The disclaimer is that I do not invest in areas like that.  All the houses I have bought have been $100k or less.  I am under contract for a 12-unit apartment complex that costs less than that.  If you think there is value in a flip and you can make some good money there, go for it, but for buy and hold, this one is a walk away based on the numbers.  It doesn't pass my 5-minute analysis.  Plus, that's a LOT of money for 1 unit.  Vacancy is either 100% or 0%.  If it's vacant, that's going to be close to $3k/month on your shoulders when it's not rented.

    If this is the only area you want to invest in and you aren't interested in going elsewhere you may be stuck with deals like this, I just don't see the value up front.  Sure, in 10 years it could make you a lot of money.  I'm not discounting things like mortgage paydown, appreciation, etc.  I just don't invest for far down the road like that.  I just don't see this as a good deal, unless I'm missing something.

    0Reply
  • Vince Szabo
    Banker · Sugar Land, TX · Member since 2008 · 12 posts · 4 votes
    9y

    @Conor Murphy (Pending colleague request)

    Look, you're new to this with $240K cash? Don't risk that money on a (relatively) long term project.

    You need to be an underwriter for quick flips. Less risk, gain experience & profit by quickly turning your money.

    Example: 3415 W Clark Ave, Burbank - Bought $588K - Sold $1,110K

                    5029 Auckland Ave N Hollywood - Bought $529 - Sold $700K

    Btw: I used to live in CC, 20 yrs in LA 

    1Reply
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