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