Is this deal worthwhile?? - Posted by Brian

Posted by JoeKaiser on July 12, 2002 at 20:59:42:

Just between you and me . . . if I can get $250 a month on a $10k investment, I’d do it every day. That’s not the problem here.

“Appraised value” is a meaningless term and one you should completely ignore. “Value” is what someone will pay you for the thing, and at the moment, even $109k looks to be too much.

I could probably get that same duplex appraised at $145k, and even still, it’s not going to worth $109k.

Every once in awhile you’ll come across a deal you know is a deal. This isn’t it.


Is this deal worthwhile?? - Posted by Brian

Posted by Brian on July 12, 2002 at 17:13:37:

I’m a REI newbie and have run across a situation that I could use some help analyzing.

It is a duplex appraised at 120K for sale for 109K. Rents will bring in $1350 a month, total payments are roughly $1100 with 10K down. Area outside of Orlando with a good rental history and well taken care of.

I don’t have the 10K now, but is it worth pursuing?

Any ideas on acquiring the 10K?

I’d sure appreciate some information from all the wisdom out there.


Re: Is this deal worthwhile?? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 13, 2002 at 18:22:18:

Brian R----------------

You give way too little solid information to say “yes” or “no.”

Ignore appraisal figures given you by the owner. You should know the real estate market where you are considering buying so well that you can state “the property is worth X to X+ $20K.” You do this by getting out and looking at one hundred properties for sale and then following up to find out for what they sold, says Bill Green in his “Think Like a Tycoon.”

You say "total payments are roughly $1100 " this is way too vague to be helpful. Is this just the mortgage payment? Is this PITI? Is this including mainenance? Does it include a vacancy factor? How about a capital replacement fund–is that figured in here?

If it really is worth $120K, a price of $109K is just fair market value. This is not a discount. A good deal is buying for at least 20% below market value, perhaps more.

How does this compare to other properties which have sold in your area, not in terms of price, but in terms of the price relative to the income? Even the Gross Rent Multiplier (GRM) measure–purchase price divided by rental income–as crude as it is, gives some information. Does this property have a high, average, or low GRM as compared to other properties in the market?

Typically, a monthly rental value of over 1% of the purchase price is a fair deal, worth considering buying if you are willing to but at fair market value.

Is the property in good condition? Will it need fix up work soon? Have you allowed for that?

How do the rents compare to other properties in the area? If they are high, it is possible that the renters will soon move on to some other, lower-cost place, and then you will not be gettin the rent that you indicate. If it is low, why? It may be good for you, if you can then raise the rent and increase cash inflow. However, if there is some reason that the rents are low of average market rents, it may be something that makes you not want to buy the property. You have to investigate.

My feeling is that you probably do not know enough about real estate in your area to be buying now. Spend the next few months studying the market where you are.

If you don’t have the money to buy the property, why do you even spend time with it?

If you don’t have down payment money, you should study up on the techniques to make deals with no money down. They apply to maybed 1-4% of all properties, but they do apply to properties you could buy.

If you don’t have money, you probably should not be owning rental properties. JohnBoy says you need to have a reserve fund for the vacancy periods and to fund repairs. How you going to pay for the water heater replacement when the old one blows out? This suggests starting out buying properties at below market value and then reselling quickly to make some profit. Then doing longer-term rental holdings later when you have some reserves.

Good Investing***Ron Starr

$109,000 - Posted by Donald

Posted by Donald on July 13, 2002 at 02:38:18:


Give us some more info— ie.

1…Is this an owner finance?
2…Who says 10k down?
3…Are they asking 109k or is that your offer.
I would not walk away, as of yet, this may ‘pencil’.
my 2 cents

Re: Is this deal worthwhile?? - Posted by waynepdx

Posted by waynepdx on July 12, 2002 at 20:47:56:

Okay you are looking at 11k equity in the property?

Now it being 109k …did you negotiate that price at all? By your post I am assuming you didnt…was that their bottom dollar?

Can they refinance the property for a lower monthly payment?

If you can get them to get their payment lowered then you may have something to work with.

As far as the 10k down…you just have to get that to go away.

Just figure out what is the top dollar you can pay for the place, put it in writing…stick a stamp on it and mail it to them…if they tell you to go pound sand…oh well you lose nothing.

Not to me! - Posted by Marcus(TX)

Posted by Marcus(TX) on July 12, 2002 at 20:37:23:

I’m not an expert on rental properties (or any properties for that matter) but a $10,000 cash investment for only $250 monthly cashflow doesn’t sound like a smart investment. It would take you almost 3 1/2 years to break even and that’s not figuring in any maintance, upkeep, or vacancies.

If you have $10,000 to invest, you should not have a problem finding and negotiating great deals that yield much more profit!!!

Just my .02

God Bless!!