Author Topic: Opinion on SFH purchase  (Read 1820 times)

omega13

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Opinion on SFH purchase
« on: October 29, 2016, 11:55:58 PM »
Hi everybody,

Wanted to get your opinion on a single-family home we are considering for a family member and their husband in Salem, OR. I already own a house that I lucked out on during the 2008 downturn. However, since then, the real estate market has gone crazy over here. I have spent a pretty big amount of time the past year looking at multifamily properties i.e. duplex, triplex or fourplex that penciled out. With no luck. This has been due to bidding frenzies, people offering over asking price and investors or people relocating from out of state. I'm considering investing out of state but helping them out and a full time job has been very time consuming at the moment.

Fast forward to now and the family member is looking for a place of their own. We've looked for about 3 months+ for them, specifically for a house that they can afford on a 50k/year income and it seems impossible to find any move in ready properties that are 3bed, 2 bath, 1000+ sq feet, safe area and within a reasonable driving distance to their jobs i.e. <45 minutes. And for less than $175k.

For them, we decided to ignore Portland and looked further south, in Salem and all the smaller towns nearby. After much research and many drive-bys, we've discovered that the craziness seems to have migrated south as well. We finally managed to get an offer accepted on a newer house, less than 20 years old, 3 bed, 2 bath, 1100 sq feet house with a pretty big backyard, in a safer area, family friendly, 2 car garage.

Zillow estimates it at about $197k. However, we had to offer above that another 3k to beat the other 3 offers ahead of us. Mind you this SFH had only been on the market for 4 days. Last it sold was in 2007 for about 10% less. Which tells me it's not an unreasonable price to offer. The Zillow comp tool values it at about $190k but given the fierce demand and competition, I and the agent strongly feel the offer would have gotten rejected if we had offered asking price. So comparatively speaking, this seems to be the best course of action.

The other problem I'm also having is that I can't seem to convince my family member that this is a good find and that we've lucked out on getting a foot in the door with a property such as this one. And that they should proceed with it. They haven't done as much research so they seem to have a skewed opinion on what the property is worth.

They are hung up on the fact that the seller would not pay for closing costs, that this property has had nothing done to it e.g. no upgrades, original carpet, no fancy floor layout and that the house is small and expensive for its size. I don't think 1100 sq feet is that small. They point to most houses in the neighborhood being in the 170-260k range. So I can sort of understand that. However, the neighborhood behind this house also consists of houses in the 220k+ range.

But then in this market, I really don't think 3-6k above asking price is that overpriced. I don't like it but this seems to be the nature of the beast right now.

Other houses we looked at have been bank owned houses or cash-only homes in the 130-170k range with work needed. Neither of us is a contractor by training so we would have to hire out for any major work.

My thinking is that given that the prices seem to be going up, they are better off buying it now instead of renting. If the market continues this way, they can either sell or turn it into a rental in a year or two. This will help them buy time to look for a more desirable property.

I have even offered to buy it from them in a year or two and turn it into a rental if they change their mind. If the market heads south, they have reserves to cover any unexpected emergencies and ride it out. I want them to avoid analysis paralysis and not miss the boat by thinking that the next best property is around the corner.

What do you think about my reasoning? Would you buy a somewhat overpriced property in a hot market such as this one or would you just rent and possibly risk 1-3 years of wait time until the markets took a tumble? I really think multifamily properties carry less risk but the ones we have found are in bad neighborhoods or need decent work. That's why we shifted the search to SFHs instead.

I am a strong believer in saving as much as you possibly can, diversifying and adjusting your strategy depending on the situation. So are they, at least the husband, so if I can help them save some cash, and/or get them some cash flow later down the road, that would be more mustachian wisdom in action :).

Thank you!
Omega





 
« Last Edit: October 30, 2016, 12:35:04 AM by omega13 »

clarkfan1979

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Re: Opinion on SFH purchase
« Reply #1 on: October 30, 2016, 06:20:14 PM »
Are you a realtor? What is their mortgage payment with taxes and insurance on the 200K house? What would rent be for a similar house? What would rent be for a 2 bedroom apartment?

FINate

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Re: Opinion on SFH purchase
« Reply #2 on: October 30, 2016, 06:45:12 PM »
I have even offered to buy it from them in a year or two and turn it into a rental if they change their mind. If the market heads south, they have reserves to cover any unexpected emergencies and ride it out. I want them to avoid analysis paralysis and not miss the boat by thinking that the next best property is around the corner.

What do you think about my reasoning? Would you buy a somewhat overpriced property in a hot market such as this one or would you just rent and possibly risk 1-3 years of wait time until the markets took a tumble? I really think multifamily properties carry less risk but the ones we have found are in bad neighborhoods or need decent work. That's why we shifted the search to SFHs instead.

I am a strong believer in saving as much as you possibly can, diversifying and adjusting your strategy depending on the situation. So are they, at least the husband, so if I can help them save some cash, and/or get them some cash flow later down the road, that would be more mustachian wisdom in action :).

I think you're conflating a well intentioned desire to influence a family member's finances with your own personal beliefs and desires around investments. Is buying a house right for them? There is no cut and dry answer to this, only they can decide. Under no circumstances should you give them what is essentially a 2 year put option on the house - this is asking for trouble and strained relationships in the family (will it be in writing, what happens if you die, at what price if the value increases or decreases).

Also be aware that there are certain IRS rules when renting to family or friends at below market rate, and this can substantially impact your ability to write off expenses/interest (e.g. https://www.irs.gov/taxtopics/tc415.html)

If you find a SFH that you think is a good investment then by all means, buy it as an investment and treat is as such. I don't think it's wise to entangle your investments with family.

 

lhamo

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Re: Opinion on SFH purchase
« Reply #3 on: October 30, 2016, 06:57:44 PM »
This is a bit confusing.  "We" made an offer but now they want to back out of it?  Who signed the offer?  Are the contingencies that will let them back out of the deal?  I think part of the problem may be that it sounds like you have done all the legwork on their behalf-- do they really understand the market?  Here in Seattle, people are having to make 7,8, 9 , 10 offers and still getting shut out.  Seller paying closing costs or rebates for updates?  Not in this market.   To snag a good house in a good neighborhood you pretty much have to have an all-cash offer well above the list price and sign your children over to indentured servitude. 

I would not pressure them into buying it.  ANYTHING that goes wrong with that house will be blamed on you.  Including it not appreciating as fast as they might like, even if it does go up in value.

Step back from the process.  Let them find/purchase their own house, or rent if they can't find something they can afford.  If you want to continue to look for rental units, and possibly offer them a reduced rent, that might be worth considering.  But let them be in the driver's seat in terms of choosing/paying their own home.

cchrissyy

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Re: Opinion on SFH purchase
« Reply #4 on: October 30, 2016, 07:51:25 PM »
I'm confused about this situation at the most basic level!

who is this family member in relationship to you?

why are you so interested in their housing decisions?

even if you care a lot about those decisions, why are you so incredibly entangled in the legal/financial side?


you talk about them the way most people talk about helping get their elderly parents situated. or maybe the way people talk about a seriously disabled sibling they have to look out for. but it is a married couple who have jobs and commutes so I am completely unsure why any of this is your problem to solve, or, how helping them ends up helping you and not backfiring.

omega13

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Re: Opinion on SFH purchase
« Reply #5 on: October 30, 2016, 11:01:15 PM »
Are you a realtor? What is their mortgage payment with taxes and insurance on the 200K house? What would rent be for a similar house? What would rent be for a 2 bedroom apartment?

No, I'm not a realtor. Just have some experience with real estate.

Depending on how much they put down, the monthly payment can be between $950-$1050. A 2 bedroom apartment currently rents for $1000-$1200. I looked on craigslist and found a very similar house for rent at $1450/month.

omega13

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Re: Opinion on SFH purchase
« Reply #6 on: October 30, 2016, 11:08:14 PM »

I think you're conflating a well intentioned desire to influence a family member's finances with your own personal beliefs and desires around investments. Is buying a house right for them? There is no cut and dry answer to this, only they can decide. Under no circumstances should you give them what is essentially a 2 year put option on the house - this is asking for trouble and strained relationships in the family (will it be in writing, what happens if you die, at what price if the value increases or decreases).

Also be aware that there are certain IRS rules when renting to family or friends at below market rate, and this can substantially impact your ability to write off expenses/interest (e.g. https://www.irs.gov/taxtopics/tc415.html)

If you find a SFH that you think is a good investment then by all means, buy it as an investment and treat is as such. I don't think it's wise to entangle your investments with family.

Yes, they want to buy a house. And I am not interfering with their decision whether to buy one or not. I am merely willing to help with the logistics should they choose to move forward. The "put" option was more of a side idea than an actual promise or enticement. I do realize that nobody has control over the market or can predict the future.

I was aware of the rules but haven't read up much on them. Thank you for the link!

FINate

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Re: Opinion on SFH purchase
« Reply #7 on: October 30, 2016, 11:40:01 PM »

I think you're conflating a well intentioned desire to influence a family member's finances with your own personal beliefs and desires around investments. Is buying a house right for them? There is no cut and dry answer to this, only they can decide. Under no circumstances should you give them what is essentially a 2 year put option on the house - this is asking for trouble and strained relationships in the family (will it be in writing, what happens if you die, at what price if the value increases or decreases).

Also be aware that there are certain IRS rules when renting to family or friends at below market rate, and this can substantially impact your ability to write off expenses/interest (e.g. https://www.irs.gov/taxtopics/tc415.html)

If you find a SFH that you think is a good investment then by all means, buy it as an investment and treat is as such. I don't think it's wise to entangle your investments with family.

Yes, they want to buy a house. And I am not interfering with their decision whether to buy one or not. I am merely willing to help with the logistics should they choose to move forward. The "put" option was more of a side idea than an actual promise or enticement. I do realize that nobody has control over the market or can predict the future.

I was aware of the rules but haven't read up much on them. Thank you for the link!

There's a big difference between wanting to buy a house in the general sense and wanting to buy a particular house in a given location at a specific price. There's a whole bucket of tradeoffs they'll need to consider once they get down the the nuts and bolts of their finances, jobs, preferences, etc. You say you aren't interfering with their decision yet in your original post you write "I can't seem to convince my family member that this is a good find" so I don't know how to reconcile these.

You may perceive the "put" option as a side idea, not something serious. However they may perceive this as a promise to backstop their investment if the market goes south. I would be very careful and precise discussing such ideas because the intent can so easily be misunderstood.

omega13

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Re: Opinion on SFH purchase
« Reply #8 on: October 31, 2016, 12:15:53 AM »
This is a bit confusing.  "We" made an offer but now they want to back out of it?  Who signed the offer?  Are the contingencies that will let them back out of the deal?  I think part of the problem may be that it sounds like you have done all the legwork on their behalf-- do they really understand the market?  Here in Seattle, people are having to make 7,8, 9 , 10 offers and still getting shut out.  Seller paying closing costs or rebates for updates?  Not in this market.   To snag a good house in a good neighborhood you pretty much have to have an all-cash offer well above the list price and sign your children over to indentured servitude. 

I would not pressure them into buying it.  ANYTHING that goes wrong with that house will be blamed on you.  Including it not appreciating as fast as they might like, even if it does go up in value.

Step back from the process.  Let them find/purchase their own house, or rent if they can't find something they can afford.  If you want to continue to look for rental units, and possibly offer them a reduced rent, that might be worth considering.  But let them be in the driver's seat in terms of choosing/paying their own home.

They made and signed the offer. Yes, there are contingencies to get out. That's not the concern. The concern is to settle or not settle for what you want given the current market conditions.

They understand the difficulty of finding a decent property without paying quite a bit over asking price for it. Totally agree with not pressuring them. And I'm not. Renting is equal to if not more expensive than buying a house. They have good credit so they have that working to their advantage.

Appreciate your feedback. It's along the same lines that I've been thinking.

omega13

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Re: Opinion on SFH purchase
« Reply #9 on: October 31, 2016, 12:22:03 AM »
I'm confused about this situation at the most basic level!

who is this family member in relationship to you?

why are you so interested in their housing decisions?

even if you care a lot about those decisions, why are you so incredibly entangled in the legal/financial side?


you talk about them the way most people talk about helping get their elderly parents situated. or maybe the way people talk about a seriously disabled sibling they have to look out for. but it is a married couple who have jobs and commutes so I am completely unsure why any of this is your problem to solve, or, how helping them ends up helping you and not backfiring.

I am interested because they need help sifting through the various options. Entagled? Because despite being married and having jobs, they are not from the US originally, therefore their understanding of the market is limited.