Author Topic: First deal - how does this look?  (Read 4036 times)

rentalnewbie

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First deal - how does this look?
« on: March 21, 2016, 05:31:18 PM »
I am thinking to make an offer on my first potential investment property, tell me what you think!

Property: 3Bed/1Bath SFH
The house has been renovated with laminate floors in the whole house, new windows, new dishwasher, freshly painted, granite countertops and new light fixtures. The house is pretty cute, has a nice yard and only a few minutes from a large hospital.
The seller is offering closing cost assistance to buyers that I will also hopefully be able to take advantage of.
List Price: 111,000
Max price: 100,000 (MAX I will pay, I will start lower, as it has been on the market 4 months already)

Target Rent: 1200/mo (I have looked at rentometer, zillow, craigslist. There are apartments nearby for 1375/mo but the house has a yard and in-unit laundry...maybe I can go higher even)

Mortgage:385 (25% down, 75,000 mortgage @4.615 - quoted by my lender)
tax: 153 (1833/year)
insurance: 50 (600/year)
maintenance: 84 (1% of purchase price)
vacancy: 120
management (I will self-manage but you know...): 120

Cash flow: 338/mo (4,056/year) Cash-on-cash return: 16% (slightly lower maybe as I need to buy a w/d pair and might have to pay some closing costs)

This would be the most pessimistic scenario, ideally I will be able to negotiate a lower purchase price, or I will have to move on. Thank you for your feedback!

zephyr911

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Re: First deal - how does this look?
« Reply #1 on: March 21, 2016, 05:37:23 PM »
Not bad.
Remember that for CoC purposes, a buck off closing costs makes a lot more difference than a buck off purchase price. When it comes to structuring your offer, or haggling over a counter, make sure you prioritize those things to fit your goals.

PadAdventure

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Re: First deal - how does this look?
« Reply #2 on: March 21, 2016, 07:39:22 PM »
doesnít look bad, especially given the level of finishes.  I assume itís in a classier neighborhood than BigSacks or I deal with, so you may be looking at something to put an offer in on.  Embarrass yourself a little with your offer, a little, as long as the market will bear it.  Good luck.

Zephyr has a good point as well...cash in your pocket vs cash spread out over decades.  leverage yourself, now is the time to do it. 

Is there any reasonable way to make it a 3/2 in the future?  If you can, that leaves you with a prime SFH sale in the future.
« Last Edit: March 21, 2016, 07:41:41 PM by PadAdventure »

zephyr911

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Re: First deal - how does this look?
« Reply #3 on: March 22, 2016, 01:37:14 PM »
Embarrass yourself a little with your offer, a little, as long as the market will bear it.

BAHAHAHA.
One of my investing partners is a car guy, and he makes sure we do that on a regular basis.

rentalnewbie

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Re: First deal - how does this look?
« Reply #4 on: March 22, 2016, 04:55:12 PM »
Thanks for the feedback, I put in the first offer, wish me luck!

PadAdventure

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Re: First deal - how does this look?
« Reply #5 on: March 22, 2016, 05:56:13 PM »
Embarrass yourself a little with your offer, a little, as long as the market will bear it.

BAHAHAHA.
One of my investing partners is a car guy, and he makes sure we do that on a regular basis.

Itís a good gauge, I was being subtle, but otherwise youíre offering too much.  You should cringe at the thought of them looking at it.

PadAdventure

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Re: First deal - how does this look?
« Reply #6 on: March 22, 2016, 05:56:56 PM »
Thanks for the feedback, I put in the first offer, wish me luck!

THATíS GREAT!!!!!  keep us updated.

not_a_trex

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Re: First deal - how does this look?
« Reply #7 on: March 22, 2016, 08:57:10 PM »
Target Rent: 1200/mo (I have looked at rentometer, zillow, craigslist. There are apartments nearby for 1375/mo but the house has a yard and in-unit laundry...maybe I can go higher even)

Mortgage:385 (25% down, 75,000 mortgage @4.615 - quoted by my lender)
tax: 153 (1833/year)
insurance: 50 (600/year)
maintenance: 84 (1% of purchase price)
vacancy: 120
management (I will self-manage but you know...): 120

Cash flow: 338/mo (4,056/year) Cash-on-cash return: 16% (slightly lower maybe as I need to buy a w/d pair and might have to pay some closing costs)

I get $288/mo when I calculate the net returns per month with these numbers. Am I missing something? I'm doing $1200 - everything else listed above. I didn't dig further to check if the monthly rates were correct using the annual numbers.

Will the renter be responsible for utilities on the house? In some areas the owner is responsible.

PadAdventure

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Re: First deal - how does this look?
« Reply #8 on: March 23, 2016, 07:11:18 AM »
That looks pretty good to me.   Your actual numbers will look better while you self manage, and keeping vacancies low.  If itís a decent area, decent/solid property, Iíd go for that.  If it was in a crappy area, or a lot of anticipated maintenance, I might bolt.  Are you getting it inspected?  Or are you capable?  (I guess youíre still waiting on your offer?)

rentalnewbie

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Re: First deal - how does this look?
« Reply #9 on: March 23, 2016, 03:27:36 PM »
Target Rent: 1200/mo (I have looked at rentometer, zillow, craigslist. There are apartments nearby for 1375/mo but the house has a yard and in-unit laundry...maybe I can go higher even)

Mortgage:385 (25% down, 75,000 mortgage @4.615 - quoted by my lender)
tax: 153 (1833/year)
insurance: 50 (600/year)
maintenance: 84 (1% of purchase price)
vacancy: 120
management (I will self-manage but you know...): 120

Cash flow: 338/mo (4,056/year) Cash-on-cash return: 16% (slightly lower maybe as I need to buy a w/d pair and might have to pay some closing costs)

I get $288/mo when I calculate the net returns per month with these numbers. Am I missing something? I'm doing $1200 - everything else listed above. I didn't dig further to check if the monthly rates were correct using the annual numbers.

Will the renter be responsible for utilities on the house? In some areas the owner is responsible.

Not_a_trex, I think you are right and I messed up my math somewhere....possibly I ran two scenarios one at 1200/mo and one at 1250 and mixed them together (my original math is on paper and I don't have it here now). This is why I need y'all to help me!

Ok, so I am really looking at 288/mo and 3,456/year. I think that is still decent enough return but it makes 100k a much firmer ceiling for sure.

PadAdventure, I am still negotiating. From what has been my top offer so far and his lowest offer so far, there is still a 16k gap, so it's looking pretty likely that I'm going to have to walk away, he's not coming down enough. There are a lot of houses out there. Maybe if he's on the market still next month he will come around too? Who knows. I can wait, it doesn't cost me anything for his house to be empty :-)

not_a_trex

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Re: First deal - how does this look?
« Reply #10 on: March 23, 2016, 09:56:57 PM »
Yeah, I'd agree that you're still okay at $288. If your inspector said nothing needs to be fixed (you did send an inspector, right?) it seems possible that you'll be able to get this for 100K.

Look at your comps. Find things they have that this place doesn't and mention them to give you negotiating power. Start low, say 90K and see if he'll meet at least halfway. All that good negotiating stuff...Know what you need to make for this to be a good deal before going into negotiations and be prepared to walk if you can't meet them.

rentalnewbie

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Re: First deal - how does this look?
« Reply #11 on: March 24, 2016, 01:18:29 PM »
I actually started at 85k! The LP was way high based on the area comps. :-)

I haven't sent an inspector yet but I definitely will during the due diligence period. The HVAC system is on the older side and the roof age is "unknown" (though no evidence of leaks) but everything else has been replaced. I will definitely want the inspector to look at those two things though and maybe I can get some concessions based on the report.

PadAdventure

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Re: First deal - how does this look?
« Reply #12 on: March 25, 2016, 06:52:20 AM »
I actually started at 85k! The LP was way high based on the area comps. :-)

I haven't sent an inspector yet but I definitely will during the due diligence period. The HVAC system is on the older side and the roof age is "unknown" (though no evidence of leaks) but everything else has been replaced. I will definitely want the inspector to look at those two things though and maybe I can get some concessions based on the report.

Awesome!  Good luck, have my fingers crossed for you...nothing sucks worse than not going low enough and have them accept it right away, you'll always wonder.

Sounds like you're working it...keep us in the loop!

rentalnewbie

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Re: First deal - how does this look?
« Reply #13 on: March 25, 2016, 09:42:30 PM »
Sadly, I think we are going to walk away from this one. The seller came below the 100k mark but I've been looking at the recent comps they just aren't high enough to justify it (all of which were also fully renovated and in some cases a little larger). My last offer was 1k above the average comp and the seller is currently 6k above me. It would still make a decent rental at this price, but I still don't want to feel like I overpaid for the house.

Thank you all for your feedback, I will keep looking. Fortunately the town near us is on the rise but still has lots of cheaper areas :-)

PadAdventure

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Re: First deal - how does this look?
« Reply #14 on: March 26, 2016, 10:02:57 AM »
Sadly, I think we are going to walk away from this one. The seller came below the 100k mark but I've been looking at the recent comps they just aren't high enough to justify it (all of which were also fully renovated and in some cases a little larger). My last offer was 1k above the average comp and the seller is currently 6k above me. It would still make a decent rental at this price, but I still don't want to feel like I overpaid for the house.

Thank you all for your feedback, I will keep looking. Fortunately the town near us is on the rise but still has lots of cheaper areas :-)

Not sad at all!  What would be sad is if you were locked in to a loser.  Youíll canvas a thousand for each one you eventually find.  Itís about picking a winner, not just closing on a property.

Each one is an education for the next! 

fishnfool

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Re: First deal - how does this look?
« Reply #15 on: March 26, 2016, 06:12:43 PM »
Hopefully you two will be able to settle on a decent price. With the recent upgrades this house has it sounds like it would rent without you having to do much work on it. Nearby apartments going for $1300 plus, you should ask more than them, maybe $1400 mo. A yard , laundry , proximity to hospital etc.

Good luck!


rentalnewbie

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Re: First deal - how does this look?
« Reply #16 on: April 03, 2016, 06:25:49 PM »
Hopefully you two will be able to settle on a decent price. With the recent upgrades this house has it sounds like it would rent without you having to do much work on it. Nearby apartments going for $1300 plus, you should ask more than them, maybe $1400 mo. A yard , laundry , proximity to hospital etc.

Good luck!

Well the apartments are "luxury" so I don't know about that, maybe. I also saw they give a month free so the effective rent is quite a bit lower.

Anyway, good news, we're under contract for under my 100k target. The adventure begins! Thanks for the feedback everyone!