New member here and I've been working through the forum posts and as many of the BP podcasts as I can. I find them very informative and inspirational at the same time! I'd appreciate some comments on a potential deal I'm looking at.
I currently live in San Jose, CA and I've been thinking of stepping into real estate investing for myself. Was thinking of looking out of state because CA prices are very high right now and currently have the opportunity to purchase a SFH in Atlanta from a friend who has 10+ properties there. I mentioned I was interested in investing so she's offered to sell me one of her properties. It would be good for both of us since she's looking for more cash flow to renovate some of her other properties there. She gave me three options:
1) a 1300 sqft SFH in 30032 for 150k. However, Zillow prices the home at ~115k. Good/bad news is that there is a steady tenant there on a 5 yr lease for 1360/month so the house seems like it would cash flow well and I wouldn't have to hire a property manager. It's pretty much a turnkey property
2) a 1300 sqft SFH in 30034 for 95k but needs ~28k of exterior work. Zillow prices the home at 90k. I think I would need to find a tenant for this one.
3) a 1100 sqft SFH in 30316 for 92k but needs ~50k of rehab work (plumbing, adding in another bathroom, and electrical). Zillow prices the home at 144k. It sounds like it may be a good house to flip since there is a huge basement that can be converted into another room. I would also need to find a tenant for this one
First thing I noticed is that the Atlanta market appears to be hot since the prices seem to be over what zillow suggests. I'm leaning towards option 1 or 3, with option 3 being the one that requires more work but would be a great opportunity to learn more about rehab. Option 1 sounds like it would cash flow well. I contacted my mortgage guy and he said i'm qualified for 5% down at 4.5% and a 4.625% APR, which roughly comes out to $597 plus tax and insurance on the high side. I was hoping to seek the advice of those more experienced than I before I jump right in. Thanks in advance!
Hey @Steven Chang , welcome!
1) Zillow isn't an accurate gauge for house sales. You really need to look at comparables.
2) Why would your friend want to sell you these properties? I would be suspect if they are all great, just my opinion (I don't know them, not a knock at them.)
3) For your first property + considering you are going to rehab out of state, I wouldn't want to take on a $50K rehab, very risky!
4) Of the options above, I highly recommend option 1 that is more turnkey. Much better way to tip toe into real estate without the stress of a rehab and the struggles that come with it that could turn you off from real estate.
5) 5% down is only for an owner occupied unit. An investment property will require 20% down in your case. Also there will be an appraisal as part of the mortgage process to ensure you aren't overpaying.
Thanks for correcting my typo! I meant 25% down. :)
Thanks again for all the advice!
anyone else have any input? Thank you all.
@Steven Chang To me, the most important question is: "How good of a friend is this?"
If your friend is someone you really trust, then you can expect she'll give you a fair deal and truthful historical numbers. If you were dealing with a stranger or acquaintance, you'd want to be more skeptical.
Unless your friend is also going to let you use her renovation crew, I'd avoid trying to manage major rehab work from 2,500 miles away.
Maybe do deal #1 and see how you like being a remote landlord before you get more aggressive?
By the way, unless you're in a cookie-cutter subdivision, Zillow prices are worthless in Atlanta. Don't even bother.