So I came across a house that is for sale made in the 1940's. It appears that the owner is actually a REI but is retiring (or so his neighbor told me over the phone) so he is getting rid of his properties. The outside looks a little rough and the presence of asbestos which I assume would be in the house makes me wonder what I should be looking out for. It's a 2/1 but looks like it would be large enough for 3 people to live in.. it seems pretty big. But anyways, there is development going on in the area and am told developers have tried to buy their properties in the past. I also know the lower bid that the seller was willing to offer his neighbor which was the tax assessed value. I'm thinking I could potentially wholesale this property, but reallyyyy want a buy and hold investment. Property taxes are around 1.2k a year on a 110k tax assessed house. Retail value is probably 15k higher. I need to do some due diligence and find out comparable rent rates in the area but I suspect I could charge at least 400 easily per person. It's had a recent kitchen remodel ( looks okay..) and new carpets. So what are some things I should be looking out for on a house like this? It doesn't have central AC either. Another thing, I need people to help finance the deal if I decided to go through on it!!!! Ahhhh. I'm also not sure what to say and not say when calling their realtor. Any ideas for a young lad? Best financing options when I don't have a full time job (although I am doing summer full time at Dept of Commerce) but no credit? Should I get someone to look at hte property with me?
If you have a 2 bedroom house, that's 2 bedrooms whether the house is big or small. It would have to be a rather unique situation for you to add another bedroom. If you're thinking about finishing a room in a basement, say goodbye to your $15k hypothetical equity. Keep in mind that you have to make sure that you're offering your potential buyers (the investor) a good deal.
So let's work backwards. You're talking about marketing this property to other investors as a possible rental. Suppose retail indeed is $125k and rent is $900 for this 2/1. Buying retail is a far cry off our 1% rule. 1% rule suggests that the investor should be looking to acquire this place at no more than 100x the rental income, or $90,000. Maybe the house needs some moderate repairs, let's say $5k to get it rent ready. Discount that from the price, now an Investor wants it at $85,000. Of course, you're looking to take a cut while wholesaling, let's say $4,000 for fun, you would need to have a contract for $81,000. Make sure that you're offering your potential buyers (the investor) a good deal.
Step one is securing accurate numbers. Rent, ARV (After rehab value), cost of repairs. Then you can calculate the amount you want to offer in contract. While working on the contract negotiations, you should be simultaneously searching for potential buyers.
Suppose your accurate numbers say you'd need to have a contract for $70,000. Yikes, doesn't that seem pretty low? Well, it depends on the needs of the seller. Does he need to pay off an outstanding $100k mortgage? Then walk away, it doesn't suit your criteria. ...But Maybe ask about his other properties before you leave. Does he primarily want to liquidate this free/clear property? Offer him a quick close at $50,000 (leaving room for negotiations). Does he have 4 similar properties, and doesn't want the headache of listing all of them? Offer contracts on each of them, getting him a much more substantial sum without all the hassle.
Your profile says you're a student, and your family doesn't own any homes yet. Where are you living now? Finances aside, could you move into this place and rent out the other room? If you're renting, it makes as much sense for you to stop paying someone else's mortgage and start building your own equity post haste.
Maybe, while finding out this guy's needs, you discover that he's not necessarily trying to liquidate immediately. Maybe he owns it free and clear, and is waiting for the right deal to come along. Would he be willing to Owner Finance the property with a balloon payment in 3 years? By then, you'd be 2 years out of college with verifiable income in order to qualify for your own mortgage through a bank, and buy him out of the property.
couple other notes:
-If you're wholesaling, you don't need people to help finance the deal.
-asbestos, like lead-based paint, is not a concern unless you disturb it during renovation. Although it might be a concern for the person you're wholesaling to.
-If you're calling their realtor, chances are good that this is already not the opportunity for you. Realtor is likely to push for max dollar from conventional (bank) financed buyer or may seek out passive investors who have 25% down for a turnkey property.
I mostly typed this wall of text because I'm relatively new as well, and the brainstorming feels good to me. Hopefully this will help spark some others' thoughts. Regardless, I recommend not letting the excitement of a deal overwhelm the rationality necessary to close a profitable deal. Your priority is not acquiring this property, your priority is acquiring any profitable property. If it's not profitable, simply walk away.
Most everything that @Andy Thompson said is spot on.
It seems you're looking to get your foot in the door with little credit/income. If the guy is an investor, I would tell him what you're trying to do. See if he'll do some owner financing so you can obtain your first property. The price you pay might be close to "retail" but you'll own a property. If you can rent a room for $400, see if you can't get him to work out a scenario where you pay him about $600 a month. If you can rent a room to a buddy for $400, and can come up with the $200 difference plus $100 in taxes, you'll be on your way to owning a house for $300/month! Once you start making income, you'll be able to refinance the current owner out of the house. If you're lucky, you'll have enough equity to do a cash-out refi, and get maybe $20,000 to use as a down payment on the next one! Good luck - the first one is tough, but it gets easier!
Your enthusiasm is great. But it scares me that you don't have the financing lined up. Some investors say find the good deals and the money will come to you. But in the early days when you're getting started, financing can be a huge hurdle. So I would advise finding the financing and then finding the deal. Meet with a few banks (one national bank and a couple local/ regional) to get an idea of the process and what they need from you. Then if you can't do it on your own, start talking to family and friends who might invest with you.
In the end, if you can get the financing sorted out, you're wasting your time and everyone else's time in the process. You might be able to do something creative with owner financing, but you should know if that is your only option going into it.
Keep learning and keep working. You'll find a way to get a deal done even if it isn't this particular property.
Thanks everyone, will all the investors it seems in my area I feel like I have to jump on it. I'll find out some more information on the house today, try and contact the owner and see if its something worth putting under contract if the numbers make sense. I thought about owner financing but wasn't sure a real estate agent would be cooperative with such an arrangement. I'm not 100% on any of this since I've never done it of course so I really appreciate you walls of text haha.
Additionally, if the price is right, maybe I could get some sort of seller financing on it, and then seller finance to another buyer? Or do some sort of lease with option to buy.. I have one friend here in the area who MAY and a big may, might be willing to help finance this through his LLC. I'll give him a call today as well. Worst comes to worst I should probably get it at a low enough price so I could actually wholesale it if there was an issue. The house has been broken into twice in the past.. so I'm going to try and stay a little leery.
From my experience, the aging/retiring landlord rarely offers deals.
In our market we have about a dozen of them with 400+ properties collectively. The typical pattern is tons of deferred maintenance, free and clear, and no seller distress. They lower rents before fixing things and won't turn them over to professional management when it would increase both equity and cash flow because nephew Jimmy is "taking care of them". Not to by cynical, but the only time we see anything close to realistic numbers from these portfolios is when they die and we are dealing with the estate.
That being said, if the seller is really done, seller financing is a good possibility. This seems to be your best strategy. But make sure you get a good equity position and have a realistic picture of the up front and ongoing maintenance costs.
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!