GOOD DEAL Or Am I'm too naive ???

Question

Hello Thank you in advance for tuning in & providing feedback!

This will be my very first deal! I am looking at securing FHA Financing and Househacking a 4plex.

I am very familiar with Property and it is a very good location (Good school district, close to the main river of the city, etc.) I do not want to get emotionally attached to property but it's hard! lol

The listed price $234,000. The owner is 77 and selling off all his property. This property has been listed since 10/2/18 and the Agent let me know owner is still making good $$$ of this so the purchase price is "Overpriced" and he won't budge too much on lower offers. Agent notified me that he may go down $10,000.

It is a turn key property , A- condition, new roof installed 2005. 3 Units are 1 bedroom and can rent out for $700+ and 1 unit is a 2 bedroom can rent out $950+

Even at that over priced asking price of $234,000 it still can hit the 1% Rule even with me living in one unit for 12 months.

What do you guys think ???? (Also agent let me know that utilities aren't separate and they all are one so he is paying for utilites and add in the contract to have him separate so tenants can pay their own before purchasing.)

Property also has a coin op laundromat in the basement.

Theresa Harris · Answer

@William Dutrieuille  How much overpriced is it and how long do you plan to keep it?  I would confirm about the statement about utilities and if you put an offer in, have that done prior to closing OR have enough money held back at closing to cover those costs.

Paul Wachtler · Answer

Hi William,

Have you considered a Master Lease Option?  Check out this blog about it from Brandon Turner:

https://www.biggerpockets.com/blog/master-lease-option

If you think the home price is high for now, you could lock in the price in for 3 years or so with this, collect the cash flow while managing the property, and then if in 3 years the place hasn't appreciated you don't need to buy it.  The current owner would still get his regular cash flow each month and wouldn't have to manage the property anymore.  If you don't purchase it after 3 years he can always try to sell it again.

Best,

Paul

Wayne Brooks · Answer

The utilities have to be subtracted out...it won’t meet the 1% rule. The owner separating utilities before closing will Never happen. Also, those tenants are paying their rent with utilities included....they will Not pay the same rent, plus utilities.

Corby Goade · Answer

Will this property help you meet your long and short term investing goals? You are insulated from some risk as a house hacker, which is awesome.

I don't know your market, so I can't say if this deal is good or bad, BUT, if it's in good shape, in a good area and someone else will be paying all of your living expenses? I know I'd like that...

Best of luck!

Joe Villeneuve · Answer

Too much info (inimportant), and not enough info.

What are the taxes, insurance, per year or month?

What should the asking price be?

What are the terms you are getting on the financing?

What is the down payment you are paying? (It better not be more than 20%).

Brian Briscoe · Answer

Is it overpriced?  Maybe.  Since it's a 4-plex, the value is based on comps and not income stream.  Ask your broker to run the comps for you...  Since it is an investment property, I'd say you should look primarily at cash flow.  Talk to your lender about anticipated PITI after sale (and realize that the county may reassess the taxes at closing).  Factor in $800-$1000 per unit per year in maintenance and repairs and set aside another $1k per year in reserves.  Rough swag -- you'll need the net income received to be about $500-600 higher than PITI, depending on utility charges.  If you only plan on living there for 12 months, I'd base my numbers off of the fully occupied rents and not from 3/4 units rented.  If you end up paying a little out of pocket, no problem...

As far as offer price, try offering $225k and make them say no or counter.

Khang Tran · Answer

Hey, glad you are thinking of the deal. I am concerned because you did not include a list of comparable properties , market rents, property taxes, insurance rates. If you have done that research, you would have an idea of what the actual cash flows are and what the property is actually worth. If it is overpriced, you will know by looking at comparables. Sit down and do the number crunching. If the agent is telling you it is overpriced, talk to him and find out what he thinks is a reasonable and take his advice and make that lower offer. The agent will likely be an asset in telling the client that your offer is a good one.

William Dutrieuille · Answer

The agent told me that he thinks the $234,000 was a little over priced. The seller originally had it listed at $245,000. But the property fits the mold I'm looking for, does not need any immediate work, appreciating area, etc. I plan to hold the property for indefinitely, just need the cashflow. I will def have the utilities handled in advance, thank you!

GOOD DEAL Or Am I'm too naive ???

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