HELP!! To buy or not to buy... - Posted by Nate


#1

Posted by nick on December 30, 1998 at 15:37:02:

It is true that you should at least expect to get a 10% return on your investment using the formula stated. However, 10% can be had in mutual funds rather easily, I would not do a real-estate deal for only 10% return. One empty unit will wipe that profit out very quickly.


#2

HELP!! To buy or not to buy… - Posted by Nate

Posted by Nate on December 30, 1998 at 01:46:14:

You guys (and gals!), I really need some advice.

I know few if any of you are familliar with my area, nor the property, but see if you can gather an opinion based on what info I give you…

(Keep in mind this is my first deal)

7 plex

gross rents $2,400/mo
avg. expense 500

Here’s what’s been accepted…now it’s in my court:

Purchase price $161,000
Assume 1st @8 141,000
2nd @8% 15,000
Cash Down 5,000

Seller seems a bit naive, but could be a good actor…

I tried to pull comps, but it’s a very unusual property (An old big home converted into apt. units), so I really couldn’t find anything comparable. Dry rot & pest report is OK.

My local realtor (hasn’t seen it) strongly suggested that I get an appraisal done “for peace of mind”, but I really don’t want to sink $800 into an appraisal…

He hasn’t had any problem keeping it occupied, but it is low income housing (not the nicest units, but not terrible).

As it sits, I’d be looking at a positive cash flow of well over 500 or 600 a month.

I’m nervous because it’s my first deal, but it SEEMS like everything looks good.

He hasn’t tried too hard to sell it, claiming that he “really doesn’t care if he sells it, but he thought now might be a good time to try considering how low rates are.” He put a tiny ad in the paper for a couple of weeks then quit.

The tax assessed value is 181,000, but I know that really doesn’t mean much.

He told me he hasn’t gotten an appraisal on it himself…ever

He’s only owned it for less than a year–bought from an old man (70’s) who’s owned it for 40+ years.

I called the previous owner (and note holder) to inquire about a cash discount on the 1st, and he did mention things like “he really felt like he gave (the current owner) a great deal”

Just tidbits of info…

What would you folks suggest I do???

I’m afraid I’m passing up on a great deal–considered tying it up and flipping it, but it may be something worth keeping…? Is this too much “landlording” for a newbie?

Many questions, a bit flustered.

HELP


#3

Probably not. - Posted by Redline

Posted by Redline on December 30, 1998 at 13:38:58:

Probably a “no buy” because:

  1. 7 units may be alot to manage (I’m assuming you will buy, hold and rent) for a 1st time investor.
  2. “really doesn’t care if he sells it” - doesn’t sound like any motivation for me.
  3. “He’s only owned it for less than a year”. This is a big flag for me. Unless he upgraded the place somehow and now wants to flip it, I can’t see why he would want to sell this less than 1 year after buying UNLESS he’s discovered he’s in over his head and/or the place is a dog. Ask him why he’s REALLY selling now. “Because rates are low” is BS. Rates have been low for years now, and look to remain that way for awhile - so what does that mean?

I would be careful here. Pay an experienced (recommended) realtor a few bucks to do a market analysis to see if you’re even in the same neighborhood.

Good luck,
RL


#4

Re: HELP!! To buy or not to buy… - Posted by Vance(Canada)

Posted by Vance(Canada) on December 30, 1998 at 11:53:11:

Nate:

Hmmmm…3%down on an investment property? Initially this looks very good. I wouldn’t worry so much about the appraisal. The income method would be more relavent here. A few things:

  1. Is there any major deferred maintenance? Ask for maintenance records or ask to look at their previous tax records. I would suggest an inspection for peace of mind, or make your offer subject to a favourable inspection.

  2. Is there potential for fix up and raising rents?

  3. Is this place zoned for multi-family?

  4. Why is he selling after only a year?

  5. Have you included a vacancy factor and maintenance in your expense calculations?

If everything looks good…I’d pick this up. Your could get your cash out in less than a year.

Vance


#5

Re: HELP!! To buy or not to buy… - Posted by BRODERICK

Posted by BRODERICK on December 30, 1998 at 07:42:05:

AS LAURE STATEDMAKE SURE THEY ARE 2 BEDROOM UNITS. ALSO DO A DO A GOOD CHECK ON ALL CURRENT TENANTS.LAST AND MOST IMPORTANT IF YOU ARE GOING TO PURCHASE THE PROPERTY SPEND THE $800.00 TO GET THE APPRASIAL DONE IT COULD SAVE YOU DOWN THE ROAD.ALSO IT"S A TAX WRITE OFF

GOOD LUCK


#6

Re: HELP!! To buy or not to buy… - Posted by Laure

Posted by Laure on December 30, 1998 at 05:26:57:

Rents seem low to me. Are they only 1 bedroom units? or is the area of town low income? Doesn’t sound like a wonderful deal to me. Read the paper and see what similar units are renting for. If you can raise the rents, you might have a winner. Keep in mind, people like houses better than apartments. And if they want an apartment, they want 2 bedrooms. Also, you can bet the current owner got it for a song if the last owner was old. Be careful !

Laure :slight_smile:


#7

Re: HELP!! To buy or not to buy… - Posted by Joey P SE AL

Posted by Joey P SE AL on December 30, 1998 at 07:17:44:

Hmm…

I am by no means an expert and am just getting started myself. If this were me I would be concerned with the appraised value, but I don’t think in this case that it would make or break the deal for me. I am more concerned with my own numbers and what will and won’t work.

Around here, properties have an assessed value of about 80% of the appraised value, this according to a local and reliable mortgage broker friend of mine. Of course this varies from property to property, but if I am already a good bit below the ASSESSED value, then it will surely make me feel much better about the purchase price.

As far as the value of the property goes, there is an easy way to get a pretty good idea of that. As a general rule, when you are dealing with multi-unit properties (four or more and for sure, seven,) the INCOME that the property generates determines its value. You must first determine how much net operating income (income minus all expenses and not debt service/payments) the building generates over the course of a year, and then realize that a most investors are looking (at least when buying into these) to realize around a ten percent return on their investments. For example: If you know that the property generates 24,000 in net operating income yearly, then its value would be near 240,000 because 24,000 is ten percent of 240,000. I use this to get a ballpark figure of what a property is worth.

Hope this helps…