First Rental Analysis - Deal or No Deal?

Question

I have a lead came in from Auburn, Wa, which is about 30 minutes away from Seattle, Wa. I was wondering if this deal seems enticing to a buy and hold buyer? In my particular market, King County, properties prices are high and difficult to find good cap rates. Our market average is 4-6%; however this property has been analyzed at 7.89%.

Deal Analysis:

Sale Price to Investor: $140,000

Repairs: 0 (Fully renovated, new tile floors, marble granite table, move-in ready)

Rental Estimate: $1,400

No HOA

Annual Taxes + Insurance = $2,200

House built in 1969, 3BE, 1 BA

House is 960 sq. ft.

Rental comps in area are between: $1350-$1500 for 3/1

Great cash flow property, right across the street from a community college in high demand for student rentals). Owner inherited family’s property but does not want to be a landlord anymore.

Would this be a tough sale or does it seem reasonable?

I appreciate all feedback.

Tony K. · Answer

Update:

I was able to get the property under contract at $100,000. I thought this deal was dead.. During contract signing, he decided he wanted $120,000. I walked. He called me back a month later and we were able to put it under contract earlier this month.

It is currently being marketed at  $115,000 through a couple of local wholesalers. I believe it's priced right, with ARV around $140,000 for a wholesale deal.. I will provide updates as new information develops.

Thanks for the suggestions, I am researching cash buyers in the area now.

@Bryan R. do you have any recommendations for local hedge fund buyers?

Tony K. · Answer

@Timothy Javins

That'd be great, I'd love to check it out.

@Karen Rittenhouse

I have not discussed a owner finance option with the seller but it may be an option since seller is flexible with lease-options. Subject-to does not apply as there is no mortgage. I believe the property will be structured as a cash deal, and to wholesale to investors.

Ryan M. · Answer

1% rent vs. purchase price is at best a break even.

Karen Rittenhouse · Answer

Another variable is how you're buying it.

Is the owner willing to owner finance?

Can you take it subject-to?

With nothing out of pocket, it has a lot more potential for the end user.

Timothy Javins · Answer

Thanks, @BrandonTurner. That's a great idea.

@Tony K., I have a live feed of cash purchases in King and Snohomish. I'll hook you up.

Tony K. · Answer

@Brandon Turner Thanks for advice from a local buy and hold investor. I will look up into contacting cash buyers that have purchased in the area.

The home's comps seems to be at 120-140k and I took the higher end as it's a in very good condition and show recent renovations. The seller initially wanted 120k but I negotiated the price down  to 95k so the property can possibly be wholesaled to a potential investor.

@ Brian R Thanks for the feedback. $1,700 for taxes and $500 was allocated for the insurance (used county data; and guested the insurance for the county). I will contact local hedgefund buyers and see whether it fits their criteria. The property hasn't been flipped yet, and with recent price negotiations, this is a possibility.

Bryan R. · Answer

@Tony K. Those tax+insurance numbers seem low. Another option would be to shop it to some of the local hedgefund buyers.

@Brandon Turner I believe it's been flipped already.

Brandon Turner · Answer

Hey @Tony K.  It's hard to say, because - as you said - the Seattle market is really tough for cash flow. As an investor, I would not buy it - but that doesn't mean there are not cash buyers in Seattle who would.
	 
	 I'd recommend pulling up a list (from your Agent or a local Title company) of all the cash buyers that have purchased a home in the last six months in that area.  Then call a bunch of them and ask them what they think. I would imagine it's possible.  
	 
	 What do the comps look like in that area, in regards to flipping? Could you wholesale it to a flipper? 
	 
	 Also - maybe @Timothy Javins  has a better idea of that market?