Could be my first deal -- HELP pls with strategy ASAP?!?

Question

OK guys, I'd like your thoughts on this one... [and I have to act fast, as I think I've got competition for this deal]

Just found a home with an out-of-state owner who says the home has 'become more of a burden than anything else'.  He used to live there and moved for work, and now rents it out.  It has an assumable VA loan with a balance of 226k, and he says he doesn't want anything else but to have someone just take it off his hands.   :superman:

The home is in College Park, a popular downtown section of Orlando with a wide mix of building styles from mid-century bungalows to waterfront million $+ estate homes.

Here are the details:  2bd / 1bath, 1150 square feet, Concrete block/brick, slanted roof, built in the mid-1950s.  Corner lot, nice double carport, small pavered back courtyard and screened-in patio. [I know it's only a 2/1, this is one of the only areas of town I'd consider such a home]

Zillow's Zestimate is just over $300k, and tax-assessed value is estimated at $251k for this year. [the land is valued at 178k itself]
Currently rented at $1200/month, but lease expires in August.  Could likely rent for a couple hundred more, based on rentometer.com info.

Home has very nice tile and wood flooring, 4 yrs new, could use some small touches inside and will look much better with landscaping outside, needs some curb appeal.

My biggest problem here is: WHAT in the world to do with this property??  It seems that renting it might have me running negative with property taxes, but it's in a great area less than a mile from downtown and a couple of blocks away from an up-and-coming revitalization area, so could be good if I can find a money partner and keep it for a while... or maybe a quick 10k assignment, or a bigger short-term light rehab and flip...  and I don't know much about VA loans/assumables, so that's another factor...

UGH.  OK, Let's start with some feedback and discussion on this one -- ?? (and if the answer is "GRAB IT" -- since it's assumable VA, how to go about doing that?) Thanks!

Matthew Giegerich · Answer

I agree with the other posters and as a former resident investor of O-town,the property is a long term hold. the area has apprecited quite a bit in the last 6 years. I used to buy these cottages for 115k all day. The revitalization and growth of the area jacked them up.  look at the market as peaked(I would) and look long term 5+ years, You will have a better chance.

Minna Reid · Answer

Even if this did comp at 300, at 226 you're in it for 75% with a ZERO repair budget. How could you possible make money wholesaling it? For a solid rehab deak with a resale at 300k, youd have to be at 210 MINUS the rehab budget.

Dan Norton · Answer

I don't know the Ohio market, but the 1% rule hasn't been true in much of the country for a while -- if you bought a 120k property to rent out here, there's NO way you'd get anything more than 750/month for it, IF that.  For a 2/1 so close to downtown, I could imagine 1495/month for this property, but people just can't afford much more.  However, you'll never find a SFH for under $150k in downtown Orlando, where the median price is in the mid-200s.

That said, and as I just wrote in my prior post, I know Zillow is crap, but it's Very hard to find anything for sale less than tax-assessed value.  The owner bought in Apr '04, and the big run-up in appreciation happened from then to about Aug '05, so the combo of finding a seller who wants nothing to walk away from it, and was purchased before the run-up in equity (plus is in a popular area) is very tempting.  ...I know there's value there, I just don't know how to best make money off it.

Dan Norton · Answer

Yes, I have NO faith in Zillow, but I wanted to post this ASAP and didn't have a good idea of true comps.  I've been in real estate for a couple of years, but as a builders/developers rep selling new construction in tract communities, and so this mixed downtown neighborhood was a tough one for me.  I just wanted to post whatever I could, so I showed the 300k Zillow along with the tax assessed value, which was a better figure to show that there's equity in it. [as with many areas, tax assessed values here are only a percentage of a property's real value]

I guess I hadn't expected anyone to hang onto each individual word -- I'll give you this one, because I knew as I typed it that it was not the accurate word choice, but it was late and i was tired.  :shock:   Yes, I'd run negative... But that's really why I posted in the first place.

I'm not looking at this property as a rental primarily, because I already knew I'd lose money in the short term -- instead, my real question was more along the lines of "What potential DOES this property have, and what could be the best exit strategy?"  Telling me that it's a poor rental is clear, but I guess I was trying to see if taking a partner to front the capital and then rehabbing would be best, or if my first impression to assign it with a 10k bump in price is the thing to do, or to lease option might be feasible, or something else...

I suppose it's harder to evaluate a home that is in such a different market; this neighborhood is so close to lots of change in downtown, and one of this week's top local stories is the discussion of the new NBA arena to be built just blocks away.  Kind of changes the outlook a bit.

-- Dan

Jim Gordon · Answer

Who says that there is any equity in the property? First do not go off Zillow go off good comps for the area. A rental value of 1200.00 per month should give you an idea that the property if rented correctly at a fair value should be worth no more than 120,000. With the way housing prices have been effected in Florida you need to find good comps and if he is willing to have you assume the loan and walk make sure the value is there.  If he was willing to go short you would hava to get a new laon as the VA would want to be paid off.

Michael Rossi · Answer

danorton,

I just have two comments.

1. If your plan is to run your business based on numbers from these silly comps type websites, you will be broke FAST.  Turn off the computer.  Get out of the house and research your market.

2. The word that bothers me here is "might".  If you want to be successful in business, you must KNOW what is going on.  If you can't calculate the cash flow, you definitely should not be buying a rental property.  This property is a HUGE loser from a rental standpoint, which is no doubt why the owner wants out.  Even if you could get $1,400 per month rent, this property would lose over $700 per month!  So, while you're waiting for this up-and-coming revitaliztion, you will be losing $8,400 per year!  OUCH!

Good Luck,

Mike

Dan Norton · Answer

Also, a followup question:  With this situation -- a seller would give up his equity if I assume his loan and let him walk from the headache of absentee ownership -- Is there really any room to negotiate price?  He's not really getting anything if I take it for the loan balance, so if the price dropped he'd effectively be paying me to take his house and equity.