I would love to get some opinions from some experienced investors. I am considering this for a buy and hold. Some other factors to consider. It has all new windows throughout. The yard is a nice size. It is a "C" Class neighborhood. Values are unlikely to rise much. It currently rents for $650, but I think I could get $700 for it.
The house is actually in decent condition. It needs a little TLC, but certainly not horrible by any stretch. A potential big disadvantage is the age of the HVAC (1993) and Water Heater (1996) and the garage (detached) will need a roof before too long (within 3 years) Inside isn't bad, could use some paint and few other improvements.
To me the numbers don't really work where they are right now, but that is why I want to get some other opinions. The cash flow seems very tight. Expenses are a bit high with the taxes being almost $1500 per year.
My main question(s)
1. What should the price be to make this a more exciting deal?
2. Would you do this deal if you were me? Why or why not?
*This link comes directly from our calculators, based on information input by the member who posted.
I wouldn't do it. The after repair value is less than the cost of the house plus repairs and the cash on cash return is too low for me. I aim for houses that I can refinance after repairs and get most of my money out of and a 12% cash on cash return.
Agreed, too low. The numbers won't right themselves later, or if the market turns, the numbers have to be right at closing. Too low cash on cash, ARV vs. Resale, etc. Great research and data, it makes it really helpful to walk away from deals like this.
Not nearly enough rent on 55 grand . It is no deal . Do not do it
Thank you to everyone! I was leaning that way as well. The issue I am running into is EVERYTHING I have been looking at is too high. I know nobody ever says this but finding deals in my market is really tough right now :) The MLS is producing almost nothing that looks right in terms of price. Even REO properties are priced high.
A mentor I am working with suggested I just start submitting 4-5 offers a week on these types of properties in the price where I need them to be knowing 99% will flat out turn me down, but 1-3 out of 100 may say yes, but I will never get that yes unless I have a 100 offers in.
I ran that past my agent I am working with and she said she is fine with submitting those offers, but said if I keep offering say 40K on a house that is listed for 67K (REO or otherwise) that I will end up developing a reputation with the banks and agents of not being a real investor or not being "serious" and they will simply start dismissing all of my offers because I am "that guy" that always offers 20-30K less than the list price.
While that sounds valid the issue is at the moment as I follow these properties nothing ever comes down to even striking distance before it disappears to another buyer. I have no idea if that other buyer offered what I wanted, i.e. 40K on a 65K listing and got it or paid closer to the list price.
Any thoughts on this?
look at duplexes In c class neighborhoods
Howdy @Michael Temple
Do you use a Realtor? If not you should. Many have access to off market deals. Your mentor is right. Submit offers based on what makes for a workable deal for you. Yes, you will get a lot of NO’s. But, once in a while you get maybe’s.
@John Leavelle Yes, I am working with a Realtor. She is relatively new to the business so she doesn't necessarily have a ton of knowledge yet, but she is also not jaded about working with investors like so many other Realtors I have contacted over the years. I knew her from some committees we serve on at the Chamber and so far she seems very responsive and open to working with me, getting me info, showing me multiple properties, etc.
I see you agree with my mentor about the multiple offers. So a question, what do you think about my Realtor's concern of me getting branded by the banks and other agents as an investor that isn't "real" or "serious" and having them either dismissing all of my offers out of hand because of that or advising their clients (the sellers) to not accept my offer because I am "that guy" as my Realtor has said. Again, keep in mind she is relatively new so I am not sure she necessarily is right, but I am asking because I don't want to shoot myself in the foot before I even get going.
I mean if I see a property that is priced at 67K and I can make it work at 40K do I wait until it is been on the MLS for 3 months and is reduced to 59K for example or just offer what I think it is worth now and keep resubmitting until it is either sold to me at the price I want or someone else at a higher price?
Good to hear you have a working relationship with a Realtor. Although she is new she is still a source to run CMAs, and she has a Broker who is probably experienced that can assist her.
Regarding being considered a serious investor or not. Which do you consider to be serious? The person always asking for marketing packages from the Seller’s agent, wanting to tour the property, asks a hundred questions, but, never pulls the trigger and submits an off. Or the person that completes a thorough analysis, looks at the property, and submits an offer based on that analysis.
To help alleviate that impression when we submit our offer we will explain the justification for the lower than asking price. Rent ready ARV vs Asking price, less all the repairs/upgrades required to get it to that condition. Plus a complete breakdown of any discrepancies identified in the Cash Flow analysis.
Many investors will provide multiple options to their offer. Different levels of Purchase price based on meeting different criteria. Like all cash purchase, Seller Financing, Sellers Repairs prior to closing, etc.
The bottom line is it takes a lot of work to find the right distressed properties that have motivated sellers. I am not in the business of trying to rip people off. But I also don't want to buy a bad deal. Most of the types of distressed properties that are good for the BRRRR strategy are not on the MLS. Although, I do submit offers on MLS properties every now and then. I have yet to purchase a property from the MLS. I did acquire 2 properties from one offer. They were off market deals the Seller had and just wanted to get rid of them. You never know.
Keeping tabs on the "No" properties that remain on the MLS is a good idea. It doesn't hurt to send a courteous follow up every few months. I have heard some have been successful with it.
@John Leavelle Thank you for that very insightful response! That really helps a lot. I really like your approach about showing my analysis and how I come to an offer. I am not sure my Realtor can actually send that information to banks for the REO properties. She has told me before she goes into a website and fills out a form and submits offers. She doesn't talk to anyone or have a way to send additional information, but I think your approach is great for those situations where I do get to present my case as it were.
Let me ask, you mentioned you haven't really bought much off the MLS and I have a growing suspicion I am not going to find much here either. As I mentioned, in the beginning, everything I see coming across the MLS is too high to be considered a workable deal by all of my analysis. So let ask, what is/are your favorite way(s) to find motivated sellers or distressed properties that haven't hit the MLS yet?
You are correct. It will not work for REO properties.
There are deals to be had on the MLS. Standard Buy & Hold deals can be found requiring minimum repairs. But, BRRRR types (distressed properties) will typically go fast or must be found by other means. Example of other options:
1. Many Successful Realtors have separate lists of properties (not on the MLS) that they refer to their preferred customers.
2. Driving for Dollars. Drive neighborhoods you are interested in and look for distressed properties. When you find one get as much information as you can, take pictures, and have your Realtor do some research for you.
3. Bird dogs. Referrals from friends, family, the mailman, Contractors, or anyone who can provide you a lead to a possible deal. You can pay them a finders fee (typically $500 - $1000) if the deal closes.
4. Wholesalers are always out there looking for deals.
5. For Sale by Owners.
6. Craigslist. People sell just about anything thing there.
@John Leavelle Thank you! That was very helpful. You seem dead on with your comment about being able to find "standard" buy & hold but not BRRRR deals on the MLS. I have found many properties on the MLS that would make good rental properties and are nice and ready to go, but as you said these aren't distressed, you pay retail price for them and you probably have a chunk of cash sunk into them after that is tough to get back out with a down payment, closing costs, etc. This doesn't really sound like a winning strategy to me unless I get to a point where I have too much money laying around that I can't spend :) Not an issue I see on the near horizon.
I love your list of suggestions for digging up off MLS deals. I am not sure my Realtor has reached the point where she has that cool off MLS list you are talking about. Maybe she will in the future and if we continue to work together she will send some of those my way, especially if I am able to get her some paying work.
I have heard about hitting the mailman up as a bird dog. In your experience has using the mailman worked for you? I personally think that is a brilliant idea for those mail carriers that have a regular route they work.
Not a mailman yet. But I have received tips from others (Electrician, a pool cleaning guy, and a painter, to name a few). I only closed on one referral so far. I usually will pay them $50 for the tip if the property meets what I am looking for. Then will pay them $500 - $1000 if I close, depending on the property.
@John Leavelle Again, great idea. Thank you. I am a marketing guy by trade, but most of my marketing is online and has not been in the real estate industry to distressed homeowners, normally I am marketing B2B, which is a totally different space than this. So I am trying to figure out how to adapt my skill set to this space and it is taking a bit of doing at the moment. I think I will eventually get there.