Author Topic: Looked at an investment property today  (Read 3241 times)

OneCoolCat

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Looked at an investment property today
« on: March 14, 2015, 11:31:58 PM »
Asking price is 80k.  It has a new roof and AC.  Needs a new electrical box, inside painting, master bathroom remodeling, and a small fix to the roof overhang.  Realtor is a family friend and assured me its a great deal.  I don't doubt her but I'm hesitant to pursue it.  After doing all the repairs it will cost at least 85k (80k + 5k repairs) to get it rent ready and realtor says it would get 800-850 in rent.  It seems like a perfect rental.  I can afford it but I question whether it will be worth it as opposed to putting my extra money into VTSAX.

I was looking at investment property as though my return is what my tenant pays toward principal + any excess after I pay taxes and renters insurance subtracted by (closing costs / 30).  So I think I will be cutting even month to month, probably better investment options, huh?

fwiw, I was preapproved for a 3.875% fixed interest rate (secondary home loan) with 6k in closing costs!  Current owners live in the house so there probably isn't any major electrical or plumbing problems but idk for sure.  Its a 1150 sq.ft 3/2 in a quite neighborhood in a good location (close to the downtown).  I would put down 16k (20%) on a conventional loan.  Would finance the 64k.  I estimate my monthly payment would be $550-600 on a 30-year loan.  When I look at this way it doesn't look so bad.  As long as I don't have more than an average of $200 in monthly repairs I would be ok.  Tough decision.
« Last Edit: March 14, 2015, 11:40:46 PM by OneCoolCat »

arebelspy

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Re: Looked at an investment property today
« Reply #1 on: March 14, 2015, 11:42:38 PM »
6k in closing costs?!  On a HELOC?  You should have no closing costs.

You're correct in that a property just at the 1% rule won't cash flow much.  I can't evaluate this deal, as I don't know your goals or that market (or even which market it's in), but I'd be passing on it.
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iamlindoro

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Re: Looked at an investment property today
« Reply #2 on: March 14, 2015, 11:44:00 PM »
80K cost + 5K Repairs + 6K Closing = 91K Purchase Price.

850 expected monthly rent/91000 all in cost = .93% Cash profit per month.

Property doesn't hit the 1% rule, let alone the much preferred 2%.  This is not a good rental property investment.  It might be a great deal for owner-occupied, but mathematically, the cold hard facts are that it's a bad rental.

MaikoTsumi

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Re: Looked at an investment property today
« Reply #3 on: March 16, 2015, 12:56:43 PM »
I'm assuming since you didn't mention it that fair market value is $80,000?   I don't know your market, but I look for deals where even with $5000-$10000 fix up costs keep me at 70% of retail.  Also I'm looking for 15% ROI or better on rents.  I'm not as concerned as others about meeting the "rules" in this case.

arebelspy

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Re: Looked at an investment property today
« Reply #4 on: March 16, 2015, 01:14:24 PM »
I'm assuming since you didn't mention it that fair market value is $80,000?   I don't know your market, but I look for deals where even with $5000-$10000 fix up costs keep me at 70% of retail.  Also I'm looking for 15% ROI or better on rents.  I'm not as concerned as others about meeting the "rules" in this case.

The "rules" are to help you hit that ROI (i.e. make a good investment).  If your property isn't hitting the 1% rule, you won't be making a 15% ROI on rents.

I'm only concerned with getting a big discount if I'm flipping.  Buying near market value in an undervalued market with the intent to hold for the long term can be a good play.  Buying near market value when flipping almost never is.
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OneCoolCat

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Re: Looked at an investment property today
« Reply #5 on: March 16, 2015, 05:19:19 PM »
I'm assuming since you didn't mention it that fair market value is $80,000?   I don't know your market, but I look for deals where even with $5000-$10000 fix up costs keep me at 70% of retail.  Also I'm looking for 15% ROI or better on rents.  I'm not as concerned as others about meeting the "rules" in this case.

How do you get property at 70% below market?

iamlindoro

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Re: Looked at an investment property today
« Reply #6 on: March 16, 2015, 05:32:31 PM »
I'm assuming since you didn't mention it that fair market value is $80,000?   I don't know your market, but I look for deals where even with $5000-$10000 fix up costs keep me at 70% of retail.  Also I'm looking for 15% ROI or better on rents.  I'm not as concerned as others about meeting the "rules" in this case.

How do you get property at 70% below market?

By focusing your attention on the problems of others.  Flippers and savvy real estate investors tend to target property not destined for sale, or not yet on the market, because of distressed condition or other opportunity to help the seller solve their problem to your mutual advantage.  If the house is in rough shape and that allows you to get it for 60% of retail value, and then you spend 10% of retail value on a rehab, and sell it for full retail value, you've profited 30%.

Common methods of finding distressed properties are knock-and-talk (drive around and knock on doors of properties in good neighborhoods that are run down or beat up, but repairable), unsolicited mailings to people in pre-foreclosure, and other mass-communication methods.

arebelspy

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Re: Looked at an investment property today
« Reply #7 on: March 16, 2015, 06:24:24 PM »
I'm assuming since you didn't mention it that fair market value is $80,000?   I don't know your market, but I look for deals where even with $5000-$10000 fix up costs keep me at 70% of retail.  Also I'm looking for 15% ROI or better on rents.  I'm not as concerned as others about meeting the "rules" in this case.

How do you get property at 70% below market?

70% of retail is 30% below market, not 70% below.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.