Al, I don’t mean to pile more on you right now but that’s WORSE than a single family house because on the whole (atleast in my neck of the woods) townhouse/condos tend to go through stages where they’re not as in demand as single family houses ALWAYS are. They fluctuate hot and cold. Also, you’ve got monthly maintenance figures and/or assessments on TOP of your other expenses! (Not to mention restrictive covenants, etc).
Believe it or not all this criticism is really meant to be constructive. We’re trying to show you the errors in your thinking.
I put in an offer today on a house. I am really hyped up about this deal.
I think the house is going to be appraised using the income approach rather than the standard comp. If it were to be appraised using the comp it would be around 43,000. But because it is going to be appraised using the income approach it is going to go for 50,000. I put in an offer today for 50,000. Reason being, the property will be able to be rented out at 625 to 650 with Section 8.
Does anybody else use the income approach on normal housing when you are selling the house?
Al,
I just made a similar offer about 4 days ago, and the buyer has accepted the offer, the 4 unit apt. building has a asking price of 152,000 I offered 160,000, but the terms are real good,
I get a $100,000 first and the seller takes back a $60,000 second with 0% interest for 5 years with a balloon payment of $45,000 then I refinance.
The seller payees $11,000 of the closing cost.
this is a win/win deal, I get in for no money down and the seller gets the cash at close they need, and there full asking price.
O yea, the broker likes it too… Win/Win/Win
Posted by J.P. Vaughan on March 26, 1999 at 09:02:51:
Al,
You should never use an income approach for determining
the value of a single family house. If you’re paying
$50K, you’re paying $7K MORE than fair market value.
A $100/mo anticipated cash flow does not justify this
price. Vacancies, unanticipated repairs (like a new roof
or furnace) will far exceed that hundred bucks in a
heartbeat.
This is NOT a deal and it’s NOT a good way to get started
in this business. If your contract has contingincies,
I would exercise one and get out of this deal ASAP.
This is not a game of getting offers accepted. It’s a
game designed to MAKE MONEY. You make your profit going
IN to the deal…either in the form of cash, positive
cash flow or equity. NONE of these exist here. If you
are super lucky, you might break even for a time. But
there’s a very strong liklihood that you will LOSE money
on this deal.
That is exactly correct Carl. Who cares what I pay for it just as long as it is a rental and am getting more than a 100 positive cash flow, even if I have somebody take care of the property management.
I did offer a lower price on the property, and he came down from 55,000 to 50,000. I accepted because there aren’t any other kind of money maker properties that you can buy for less than 50,000 and still rent it out for 650+. To me a 173 cash flow is great.
I belive in holding out for the long term.
OH…I do also have another property in the same neighborhood that I paid 42,600 for last year. I am not nieve, but I think I just might have made myself money by buying it.
It might have not been the most creative deal but, hey, at least it is getting me started, right???
Posted by Julia Anne on March 25, 1999 at 11:47:52:
Why didn’t you offer under $43k? Are you forgetting that you are the BUYER not the seller? Buy low, sell high, make profit. Not to burst your bubble–it takes guts to make any offer but rethink this one.
The thing about it is that this is a condo townhouse. Most of the houses
around this area are going to skyrocket in about five years. I do plan on=
holding onto this property. Market rent is 650- 675 for a 3bd 1.5 bath. T=
he
town house is very well taken care of and I do plan on looking at the pla=
ce
with a building inspector to go over it with a fine tooth comb. You were
saying that the name of this business is to make a positive cash flow. If=
I am
buying to hold on and to make a positive cash flow of nearly 200 a month.=
The
money that I put down in this deal, 6500 and a yearly income of 2148. Tha=
t is
30% on my money. That aint bad even for an investment. Also it is in the =
same
neighborhood as the place that I am staying. I can keep an eye on the pla=
ce
and it is going to be rented out to section 8 tenants. I do have some out=
s in
this contract, but the thing is that the owner knows very well that the p=
lace
is a great money maker. That is why is isn’t very eager to sell. In fact =
the
whole neighborhood is mostly rentals and they sell fairly quickly because=
of
that reason. I am very glad to have your input in this deal. I admit I am=
a
newbie and this will be my second deal, but even if I have to move to Tim=
buktu
and have a property management company help me out. 150 bucks on a proper=
ty is
great after all is said and done right???
Also that Section 8 does an annual inspection on each property and in our area they are TOUGH. It could cost you $$$ in repairs that you would not normally consider necessary.
I just hope you won’t have to sign personal liability on a loan and won’t have to put your cash into that deal. If you did eihter one, you need to read more on this web-site.
Dude, whatever floats your boat. If you’re able to buy at FMV (or very near) and make some cash flow and you’re happy with it - then that’s all that counts.
He’s thinking cash flow. 50k loan, pull in 625/mo. acceptable. I’d rather pay 40k though for the same thing. Why DID you pay more than 43k? Hope everything works out.
Think again about why you did this - Posted by Nancy in NC
Posted by Nancy in NC on March 26, 1999 at 20:10:22:
I also bought a single family house at full market value. It was before I got involved in “creative real estate”. I now know that it was my worst deal.
REASONS WHY FMV IS BAD DEAL:
No equity. which means no enhancement to networth
Cashflow ok, but not enough to pay for my time and use of borrowing power.
Tax benefits ok, but just a delayed expense.
BENEFITS OF THIS PROPERTY TO ME:
Nice house, nice neighborhood - and I should be able to get my money back if I had to sell and it was not a fire sale.
SUMMARY:
I can live with this deal, because it is only one house. All of my other deals have provided either a gain of equity or high cash flow coupled with fast payoff (like rental trailers).
ADVICE
Please take time to think about your program. What is your plan? Why are you investing in real estate? What is you objective and do a reality check to make sure that each deal is getting you closer to your main goal.
HAVE FUN AND REMEMBER TO KEEP A POSITIVE MENTAL ATTITUDE