Too much to chew for first rental deal?

Question

Found 4 SFD in a nearby market that I am very familiar with. Population is projected to increase dramatically in the next 20 years... along with it being a college town long term appreciation should be expected.

The 4 SFD are all right next to each other which is appealing for convenience.

My estimated returns are somewhere around 5.5% averaged across all 4 properties. That is with the sellers asking price which I obviously don't plan on paying.

Each property needs 5-10k in improvements... maybe more if I uncover something major.

2 units are vacant. 2 units are filled. College neighborhood with college tenants.

House 1: Asking $100,000. Appraises for $91,000. Would rent for $1200/mo after repairs.

House 2: Asking $79,000. Appraises for $43,400. Would rent for $900/mo after repairs.

House 3: Asking $100,000. Appraises for $80,000. Would rent for $900 after repairs.

House 4: Asking $79,000. Can't find appraisal online. Would rent for $900 after repairs.

Question #1: Two of the units have been smoked in. Is it possible to get 100% of the smoke smell out of the walls and flooring. not 99%... I want it gone! I hate that smell and I don't want to attract a tenant that is okay with that smell.

Question #2: Is this too much for a first deal? There would be some family money coming in for down pay on 12 month notes. Re-fi after 12 months classic BRRRR technique. I have a full time (but very flexible job).

Question #3: According to my county and tax searches... the owner has owned the properties for 15 years. He paid roughly 50% of what he is asking on each property. I would imagine his note it paid off or close to it and he's getting out of the game and getting a pay day. He is behind on taxes and with two units being vacant I doubt they are cash flowing. With that knowledge of the owner being a little bit of a bind, how can I use that to my advantage?

I am going to see the properties Tuesday. I did a drive by... hopefully the inside is better kept than the outside

Jason Chen · Answer

Id offer him about 2/3 of he's asking at best. If he doesn't take it, Id just run.

No reason to put yourself in a marginal hand for your first deal or a weak one when you could put yourself in a strong one.

Travis Tannahill · Answer

Appreciate the dose of reality and honestly Nick. Yes I was referring to county tax assessor. Fully understand the differences. Thanks!

Nick G. · Answer

@Travis Tannahill As much as I and many other BP'ers like cheering others on, sometimes a healthy dose of caution is far more important.

1. "Too much to chew for my first rental deal?" Depends on your personal finances, but yeah, it might be. New investors getting overextended or over their head is one of the top reasons for losing your hat.

2. "My estimated returns are somewhere around 5.5% averaged across all 4 properties." Try to pick the top performer(s) and just buy that one(s). No need to buy the losers of the bunch.

3. "... maybe more if I uncover something major." You will.

4. "Appraises for $91,000... Can't find appraisal online" That's probably because it's not an appraisal. You may be looking at an automated value estimate, which are often completely inaccurate, or maybe the tax assessor's value assessment. Either way, neither should be relied on. Do your own diligence with comparable sales.

5. "Is it possible to get 100% of the smoke smell out of the walls and flooring" Sure, just rebuild the house. I understand what you're saying, but you need to be okay with 99%, because it takes time and money, and 99% gone is considered perfect for 99% of tenants anyway.

6. "Is this too much for a first deal?" It might be. Be careful with family money, too. In a perfect scenario, I wouldn't buy more than one or two at absolute most. Wait until your first rental stabilizes, then continue growing. In this case, since they may be a package deal, you'd need to buy them low to help offset risk. Then prepare for a few months of being very, very busy.

7. "how can I use that to my advantage?" You should be able to buy them for less. However, most buyers get 30-year mortgages, so 15 years in, he would still owe half the note.

8. "I did a drive by... hopefully the inside is better kept than the outside" It usually isn't.

Too much to chew for first rental deal?

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