All Forum Posts by: Jessica Sorensen

Thanks for all of the advice! @Andrew Davis was kind enough to provide me with a sample Purchase Agreement. Another investor I've been working with hooked me up with a referral to a title company. After talking with an escrow officer there, she assured me that the contract I had would work out just fine, and once it's signed we can open up escrow with an earnest money deposit and go from there. It sounds like the title company can handle just about everything along with my mortgage lender, so at this point I have not met with a real estate lawyer and don't think that I need to? (My investor friend gave his attorney a call on my behalf, and he said "go talk to a title company".) 

I'm a bit concerned about all of the fees involved though. The escrow officer rattled off quite a list of "seller usually pays this, buyer usually pays that". Things like title transfer fees, recording fees, closing costs, transfer taxes? Given that I approached him to sell, I expect to cover most of these myself, but I don't want to offer to pay for something that I really don't have to... Any suggestions from investors out there about how to split these costs up when YOU approach an off-market deal? We're getting a great price but I wouldn't exactly call this seller "motivated". (More like "Eh, sure, hadn't thought about selling, but why not? Give me a couple months to clear out the basement.") I don't want to scare him off with an unreasonable expectation of fee payments. 

I'm meeting with the seller tomorrow to do another walk through of the house and hopefully get this agreement signed. Fingers crossed! I'll try to keep everyone posted as this unfolds.

Hey BP, I need your help again... I've found a great deal on an off-market property. The owner and I have come to a verbal agreement on the price, and he wants "a couple of months" to clear his things out of the garage & attic. (It's a rental, currently vacant but the owner was storing some building materials there.)  I'm happy to wait, but then I want this to be a sure thing in writing. 

How should I move forward with this transaction? I have been working with an agent to look at other properties (only one so far), but is it a good idea to involve him in this deal or save the commission by doing this with no agents? What contracts need to be signed (just a standard Purchase Agreement or more?) and where do I get those? I still want to do an inspection and I will be buying this house with a 20% down mortgage (pre-approved). Should I go to a title company and have them guide me through this? Lots of questions... I don't want to miss something I should be doing, nor do I want the seller to feel like I'm taking advantage of them in any way. (I worry that if I approach this with a buyer's agent, he'll feel the need to get himself a selling agent, and then a simple handshake deal just turned into a bunch of commission costs.)

Any advice is appreciated! This property is in California. Owner owns it free and clear. (He says... That's another thing I want to confirm.) Thank you!

@Megan Miller

We've been targeting Oak Park as well so it's great to hear that others have jumped in and been successful there! And I think your points about financing are spot on. We had considered the roommate angle too, but as a newly(ish) married couple I think times would have to get pretty desperate before we were willing to go there. ;) 

It's great to be hearing feedback from others in the Sacramento/CA market. You do have to change your perspective from what's popular on a lot of BP to make deals work here. I appreciate all the advice and I think we're going to go for it! It's not a done deal... Price is still being negotiated a bit and we'll see what happens when we get to inspections (it's an OLD house), but this deal is just too good to pass up. We're going to do whatever we can to make it work! 

@Rick H.

 Thank you for writing this. It's very inspiring!

Yes! Exactly! It's a different style of "house hacking". I have to pay to live somewhere right? Why not pay for something that will pay me back in the long run? The duplex strategy just doesn't work in this market.

In response to your questions... 1. We wanted to save up as much cash as possible to buy a second property as a rental. I'd like to buy into a B neighborhood, and to cashflow in this market that requires a 50, 60, 70% down payment if not 100% cash. I know some disagree with "buying" cashflow, but that seems to be what makes sense here.

2. This was basically the reason for my question. Can we afford it? We have been shopping for a house that would allow us to live well below our means (and like you, we were targeting Oak Park), and continue a high rate of savings. We can "afford" it in the sense that I won't go bankrupt paying the mortgage, but we can kiss our "save cash to buy with cash" strategy goodbye. All our cash would be locked up in equity and I was looking for advice on if that was smart when starting out. And anything remaining would be going to rehab. (On the bright side, it's my job to manage/budget renovations, so there won't be any surprises there!)

3. Great question. And I don't know. Selling after a few years is certainly an option, but I'd really prefer to hold & rent. That's really why I started this thread. I'm seeking advice on whether or not an equity deal is a good deal. 

@Chris Simmons  It would likely cash flow only around $100/month. Nothing special. This would be more of a 2-year live-in flip than a buy and hold. It doesn't even really need THAT much work if I were to just do the minimum. 

I guess I should have mentioned a few more reasons this seems like a great deal. I didn't want to get into my personal financial status, but what the hell? Here's some facts/numbers:

- I'm being offered this property at $325k. It's a 2/1/1200sq. Comps go for $350-400k. It's worth noting that in the last six months, not a single home in this neighborhood has sold for less than $340k. (Nearby condos are in the $400-800k range, but condos aren't really "comps" so I'm not counting those.) 

- There's an unfinished second floor that is currently considered "attic" space. If I can come up with the funds to rehab this space, it could be a 3/2/2000sq. Comps suggest it would be worth $475-550k. 

- It currently rents for $1995.

- It sits on the edge of a HOT neighborhood. It's in the middle of a 15 block square of the city's best bars and restaurants (about a dozen in the last few years). As many pointed out, the ARV is highly speculative and I'm banking a lot on potential appreciation. But there are few reasons I'm expecting huge increase in value (and why I can't accurately pin down ARV at this time):

1. Whole Foods recently announced it's knocking down a parking garage and opening a new location ONE BLOCK AWAY. 

2. There's a new restaurant/retail/residential (condo) building going in 7 blocks away. I can't say much about it, but it's going to be a destination point in the city.

3. The city has announced a massive redevelopment project (replacing abandoned warehouse buildings with a strip of retail and restaurant spaces) about half a mile away.

Obviously this will take some time to build, which is why holding for 2-3 years seems like the best decision. While I wait, I can take my time to rehab as my budget allows and enjoy the space for myself. ;)  And before anyone else suggests it, I am not wholesaling or renting this out (immediately anyway). This is an offer by a family friend to help us out with our "first home" because they know I want a fixer upper, and immediately turning around and making a profit on it just seems unethical. 

Does this change anyone's opinion?

 Unfortunately, no. Our jobs prevent us from leaving Sacramento.

@Chris Pasternak  Excellent point. ;) But what if you could build 3x as much equity in the same time period? Is that better?

My dilemma is:

3 years "cash flow" = ~$40-60k

OR

3 years equity = $150k+

What would you choose?

@Chris Pasternak For our first home (owner occupied, obviously) we cannot go out of state. For now we are looking on the MLS. Yes, it's super competitive, but I don't think it's a good idea to market directly when I don't have the ability to buy cash, wholesale, or close quickly. However, we dd find this deal off market just by talking to family& friends.

Finding a deal is not my problem at the moment. I'm looking more for advice on whether or not I should take a deal that gives us a strong equity position over a deal that keeps us more cash at the end of the month. 

@Jane A. Unfortunately, we ARE in an overpriced market. If there was a 4plex around here that would cashflow with 3% down it would be gone in 5 min (and the buyer would probably pay all cash). Single family homes are actually a better bet most of the time in this market.