Posted by JFinke KC on February 12, 2002 at 17:28:56:
Gary,
I generally do not do Lease Options and don’t have any real experience with them, but from what I’ve read your theory is relatively sound, however, the deal is very thin. Possible but thin. The reason for the increase in sale price is to allow the buyer to get into a home without immediately qualifing for a loan through a bank, that’s what I meant by easy qualification.
When it comes to new homes, they can have just as many problems as used homes. I would try to get references from the developer/builder of these homes and speak with neighbors to see if these homes are of quality workmanship. I’ve heard of several stories of new homes being built poorly. Always have a professional inspection done before you buy. This deal is thin enough where a single major problem could eat you alive.
As you can probably tell I think investing in new homes is a bad idea, unless you are the developer. Hopefully someone that’s done this will chime in with their opinions.
If it were my money, and had to reinvest it with a 1031, I would probably look into smaller multiunits (2-6 units) in a middle income area. Something that cashflows relatively well. But that’s just me.
Posted by Gary O on February 12, 2002 at 12:54:43:
I was wondering if anyone out there ever invests in new homes in a new developments. There are several small subdivisions (all track homes) where I live, new ones going up daily. Most of these homes are around 1200 s/f and are listed around $100,000 - $110,000. If you could purchase two - three of these homes for about $90,000 - $95,000 apiece would this be a good deal for rentals or L/O’s. I was thinking that it would be because they are new homes and you therefore would not have the hassel of repairs (or as many repairs). Also for this town these would be a little higher end rentals and therefore you may not have the problem with low class tenants (as much). Please give me your input. Also, what I have is about $50,000 cash from my mother that sold her rental and wants to reinvest it all to avoid CG. Please,Please,Please I need input. I’m totaly green to this stuff, but desperately want to learn.
Posted by JFinke KC on February 12, 2002 at 16:01:20:
Gary,
I do not invest in new homes so my input may be a little off.
Primarily, investors look for properties with larger percentages of equity than what you are looking at. 5-10K in equity is pretty thin unless the area you’re considering is appreciating rapidly in value. You seem to be inquiring primarily about the best avenue to shelter your mothers money from capital gains, however, I don’t feel that speculative real estate investments (as these new homes would be) is a smart venture for a beginner. In my opinion, the only way to work these new homes would be to exit via a lease/option at slightly above market prices in exchange for an easy qualification for your buyers. But, you should really investigate your local market to determine whether rents in the area will support your expenses.
If I were you, I’d spend alot of time reading this site and other resources to determine the REI specialization I want to invest in prior to jumping into a low equity deal.
Posted by Gary O on February 12, 2002 at 16:49:07:
Thanks for the response. A couple of questions. If I were to offer a L/O to a potential t/b could I set the buy out price at $115,000 in 1yr. Meaning a t/b could lease for 1yr and then have the option to purchase the property in 1yr for $115,000. I know that you really need to know the area in order to answer that question, but if you could imagine, the area is nice and is only surrounded by descent homes, there is absolutely no trash. It is also growing very rapidly and home sales have been realy high. Do those numbers sound off to you?
You also mentioned doing this in exchange for an easy qualification for the buyers. How would go about offering this.
Also I have been reading all the posts and the how to articles and they all point to buying used homes, which I know could not be bad if done right. I guess I just feel safer buying a new home that I know I won’t get screwed with having to put on a new roof or redo the plumbing.