Offer turned down--thoughts please (long)

3 Replies

My short term goals:
get a mortgage and buy at least a 3/2 house to rent w/a positive cash flow.
Move into it, and either rent or sell my residence. This new house may or may not be _my_ house for the rest of my life.
If I rent my present residence, I don't have to buy a (different)rental, and I don't have to pay commission/costs.--I would go through an agent to do this, I think.
If I sell, I would use that money to either
a) pay off the new mortgage and use the rest to get another mortgage
or
b) use it all to buy another house.
Just writing this it makes more sense to just use that sale money to buy another house rather than paying off the anticipated mtg (bought at about $6000 in closing costs) and taking out another mtg, maybe with that same amount of closing costs--and why are they so high? I need to talk to the lender to see about that. There is the regular closing which will be about 3000, plus taxes/insurance, inspections, and what?

I am working with the agent through whom I bought my residence 12 years ago. I trust her, but also know her priority interest is the commission check. She said rents are high now because housing prices are so high. I kind of remember hearing something about that. There are big growth plans for the area I'm looking at.

Yesterday I made an offer on a house, potentially for me, but would probably be a good rental. I will see about getting a rental agent in to look at it. The offer was $22,500 lower than asking, which is $177,500. I know from the assessors records they bought it about 15 months ago at 167,000. According to the mls sheet, they've put in all new cabinets, sink, appliances, water softener 1 year old. New fixtures in guest bath, roof new in 2005. My agent said she added the seller agent commission to the 167 and comes up with that 177,500, and that the seller is not making any money on it. So it was not bought to flip. The previous owner may have: He bought seven months previously (03/2005) for 149000 and sold it for 18,000 more.

There will be the inspections.
Questions:
Asking price 177,500 in a neighborhood where many houses go for more, but many have a pool, this does not.
4 small Bedrooms, (not a major problem)
and the neighborhood is generally well kept.
The house does need some work.
In an area I wouldn't mind living in.
1 car carport-I'd rather have a 2 car garage, will probably have the carport enclosed as money is available.
No security system. I would probably put that in first.
This house faces west, and backs up to an alley. On the E side is an open strip, then a 4 lane street with a median. Directly east of that street, which is not now heavily traveled, is the neighborhood high school, and the view is basically the parking lot and the bleachers for the football stadium. Distance to the far curb is maybe .2 mile.
Bus stops are within ½ mile.
Community park w/4 softball fields, two soccer fields also across the street, but not visible because of open area and some large trees.
There is a well equipped gym and swimming pool, and just beyond, a community college. So there is traffic.
The park gets a lot of use. The lights are on till at least 10 at night many nights. The traffic to and from it should not directly affect me except as to noise, and I don’t know that would be a big problem, though it does concern me.
I don’t know if the road is used by semi’s of not. The masterplan has one major road 2 miles west and major expansion of another road 3 miles to the east.
North of the house is a phone calling center (Electro-magnetics) but there are 5 houses between that building and this house)

The mortgage on my offer puts it at just about the highest I can pay. It would be tight for me until I either rent or sell my residence, but I’ve eaten rice before. Not fun, but can be done.
They turned the offer down, say they can't go any less than the 177500. My agent insinuated they would not consider less. Their agent said if they took my offer, the sellers would be 25000 out of pocket. It's been on the market about a month. I have to talk to the lender to see about that, but I think I can do the 177,500, but will have to also do a second mortgage, which would be less than paying PMI. This is the only lender (countrywide) I've talked to.
I will see it again tomorrow AM, and also need to get a rental agent to look at it.

What questions should I be asking, what things should I be looking for, what do I need to do?

It sounds from your post that you're not sure why you are buying this house. Is it for you to move into and live in, or is it for you to rent out? If you are going to rent it out, most of what you talk about in your post is largely irrelevant. You need to start looking at numbers -- what (realistically) will it rent for, what are the expenses going to be, etc. You need to make sure that you are getting into a money-making deal. Take a look at the property analysis tool on this site to get some idea of the numbers you need to look at.

Now, if you are planning to live in it, then it's a whole different game and you need to consider a bunch of subjective things and how they mesh with your personal tastes and desires. If you do plan to live here, and rent out your current residence, then you need to analyze your current residence to help you decide if it's worth keeping as a rental or if your money would be better spent elsewhere.

Originally posted by "TN-Apprentice":
It sounds from your post that you're not sure why you are buying this house. Is it for you to move into and live in, or is it for you to rent out?

I know why I'm buying. Part of the hesitation is because this is a huge step. Because of the monthly cost, I need to be sure I can cover the mtg with rent from it or a different house.
I plan to move into it and expect to be in it at least 2 years. I fully expect to be selling my house; it's more a question of when. When I close and begin to move from here into the new place, I expect to list this one. Thing is, if it doesn't sell right away, for the price I'd like, I have the option of renting it and keeping it up for sale. I'd prefer that it be sold now to avoid rentor/access problems, but think that even a year from now could possibly get a few more thousand, but there's also other building soon to be started in the close proximity, so selling now is probably best.

I would take the sale money and buy another place, and possibly move into that one in a year or two, and rent out the first one purchased.

Originally posted by "TN-Apprentice":
If you are going to rent it out, most of what you talk about in your post is largely irrelevant. You need to start looking at numbers -- what (realistically) will it rent for, what are the expenses going to be, etc. You need to make sure that you are getting into a money-making deal. Take a look at the property analysis tool on this site to get some idea of the numbers you need to look at.

I will do that--thank you.

Now, if you are planning to live in it, then it's a whole different game and you need to consider a bunch of subjective things and how they mesh with your personal tastes and desires. If you do plan to live here, and rent out your current residence, then you need to analyze your current residence to help you decide if it's worth keeping as a rental or if your money would be better spent elsewhere.
So get a rental agent in here, too. Good point.
Thanks.
ofgift

Think about a 1031 exchange.

A 1031 Exchange is a transaction under United States law which specifies that if an asset (usually some form of real estate such as land or a building) is sold and the proceeds of the sale are then reinvested in an asset of a similar kind (like kind asset), then no capital gain or loss is recognized, allowing the deferment of capital gains taxes that would otherwise have been due on the first sale. This law is defined under section 1031 of the Internal Revenue Code, 26 U.S.C. § 1031.

IRS rules control the length of time that the replacement property must be held before it may either be sold or used to enter into a new tax deferred exchanged. In highly appreciating markets, people may take the opportunity of selling their personal residence (where no capital gain is due below $250,000 for a single person or $500,000 for a married couple) and moving into a former rental property for a specified time period in order to turn it into their new personal residence, and thus avoid capital gains taxes.

In order to qualify for this exchange, certain rules must be followed:

1. Both the relinquished property and the replacement property must be held either for investment or for productive use in a trade or business. A personal residence cannot be exchanged.
2. The asset must be of like kind. Real property must be exchanged for real property, although a broad definition of real estate applies and includes land, commercial property and residential property. Personal property must be exchanged for personal property. (There are some complicated rules surrounding this -- for example, livestock of opposite sex are not considered like kind property for the purpose of a 1031 exchange.)
3. The proceeds of the sale must be invested in a like kind asset within 180 days of the sale. However, the property must be identified within 45 days, but up to three properties may be identified.

Frequently, the most difficult component of a 1031 exchange is identifying a replacement property within the first 45 days following the sale of the relinquished property. The IRS is strict in not allowing extensions.