The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Crazydude on April 27, 2016, 03:04:50 PM
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I bought a SFH, 3 bed 1 bath property last March for $64k with 20% down. In addition, I put about $3k into fixing it up. The profit after expenses each month (it's a rental) is $450, and that does not include deductions for maintenance or vacancy.
I had someone offer to pay $90k cash for it. It would probably appraise for 69/70, I only bought it a year ago. My profits from this sale would be about:
Offer: $90k
Loan balance: $51k
Total investment: $16k
So...
90-51-16 = $23k
The $39k I'd get from the sale (90-51) would take over 6.5 years to earn using just the profits from rent, and that's not taking into consideration maintenance and vacancy.
I think after only one year of ownership, this sounds almost too good to be true. Is there any reason I shouldn't take this deal?
Sidenote: I've asked myself the question: "If this is being offered now, imagine what could be offered in 1 or 2 more years!". But the difference I see here, is that I'm being offered way over the appraisal price, which doesn't usually happen right?
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I guess at this point the question becomes "would you pay $90K (minus whatever adjustments you need to make for taxes and transaction costs) for this house today?" Because that's essentially what you're doing if you don't take the offer.
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If you sell later you might have to pay realtor fees, etc.
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You're probably already doing this based on what you'd imagine it would appraise at, but definitely look at comps do some thorough research. Maybe ask for a second opinion from a local friend who invests/sells real estate.
If your research shows comps having sold for significantly less than $90k, then absolutely sell to a cash buyer. Assuming this is a FISBO, review that purchase agreement VERY carefully and if anything isn't crystal clear you should get a RE lawyer to review it as well. Some would say have a lawyer review it no matter what.
Yes, you can think about what the property might get you in a few years, but think about what kind of RE moves you can make now with 39k cash.
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I have let the buyers know I'm thinking about it.
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Sell, take the money and buy 2 more for $64k each. Rinse and repeat?
Or go to the bank, borrow the against the increased equity and buy another place if you don't want to sell.
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If that really is more than fair market value, I'd absolutely sell. I'd pony up a few bucks of that profit to have someone help me with the paperwork.
If you hold and sell, you have to wait for it to get to 90k, wait to get an offer (and possibly have it sit empty), and then probably pay realtor's fees.
One consideration, however, will be the current lease and the state and local laws that apply when selling a property with a tenant in it, so make sure you fully explore that element of this.
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If that really is more than fair market value, I'd absolutely sell. I'd pony up a few bucks of that profit to have someone help me with the paperwork.
If you hold and sell, you have to wait for it to get to 90k, wait to get an offer (and possibly have it sit empty), and then probably pay realtor's fees.
One consideration, however, will be the current lease and the state and local laws that apply when selling a property with a tenant in it, so make sure you fully explore that element of this.
Tenant is leaving end of May, so the potential buyers' interest is perfect timing. They do have a realtor, however, so I can't avoid realtor fees completely. They only asked for a 3% commission though, which doesn't dent the offer much, I'm thinking still a good deal.
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I would totally take this deal. Perfect time to sell while we are at the top of another debt cycle. Get out now and keep your capital on hand for when the next market tank happens!
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If that really is more than fair market value, I'd absolutely sell. I'd pony up a few bucks of that profit to have someone help me with the paperwork.
If you hold and sell, you have to wait for it to get to 90k, wait to get an offer (and possibly have it sit empty), and then probably pay realtor's fees.
One consideration, however, will be the current lease and the state and local laws that apply when selling a property with a tenant in it, so make sure you fully explore that element of this.
Tenant is leaving end of May, so the potential buyers' interest is perfect timing. They do have a realtor, however, so I can't avoid realtor fees completely. They only asked for a 3% commission though, which doesn't dent the offer much, I'm thinking still a good deal.
Negotiate the commission if you like. My fellow Realtors would stab me, but hey, you always have that option.