Author Topic: Potential Purchase  (Read 1709 times)

Thoughtful Mule

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Potential Purchase
« on: February 03, 2015, 01:44:01 PM »
Market Value: 70,000
Purchase price: 59,000 cash
Gross Rents: 850-900 / mo
Taxes and Insurance: 780 and 700 respectively
HOA costs: 0
Deferred maintenance notes: Paint in and out, and cleaning 2,000

This is a wood frame house in Central Florida. 3/2, 1150 sf.  It has been updated and looks rent ready. 

The area is nothing special, isn't headed downhill.  Its about 40 minutes from my current home, a little farther than I'd usually like, but deals are hard to find close by.

Using a 50% expense ratio, 15% down at 5% interest, I calculate a 15% cash on cash return.

Barring any major issues not yet noted, would you consider this for a rental?

Cheddar Stacker

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Re: Potential Purchase
« Reply #1 on: February 03, 2015, 04:43:29 PM »
I would, but there are many others around here that have more experience than me. Monthly rent would be around 1.4-1.5% of purchase price, so not bad IMO. How does it relate to other opportunities you're looking at? How are you getting it $11K under Market Value?

Thoughtful Mule

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Re: Potential Purchase
« Reply #2 on: February 04, 2015, 11:51:34 AM »
How does this compare to other opportunities? Well, the area is outside the big city in a lower income area.  Management would be more difficult and vacancy / non-payment would be more likely.  The upside is that the returns are better.  The deal is through a wholesaler that I met at my local REIA.

Bobberth

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Re: Potential Purchase
« Reply #3 on: February 04, 2015, 12:49:49 PM »
I have some major flashing red lights going off upon reading "wholesaler" and "lower income area" in regards to a rental purchase.  I know there are some good wholesalers out there, but that is not my experience so far.  In my market (St. Louis) a $59k "wholesale, cash only deal" in a lower income area that rents for 850-900 is this:

Stated rent is high.  Any expenses stated are low or missing. 
$59k by a wholesaler here would be the "best" part of the war zone-your market prices may vary.  Less than that from a wholesaler and you're in a war zone.
If it's offered by a "wholesaler", you could buy a similar house off the MLS for $10k-$30k less.  Cheaper if you want to do some work.
Market value is a joke as the only market value is what you can talk an out of towner into paying or what a low income landlord would pay
"Cash only" means "The property won't appraise out" and not the implied "Screaming Deal!"
If it's stated as "XX% ROI", run away.  They are trying to sell the yield and not the property.

Pull up the zip code on realtor.com and see what is on the market to make sure you know the actual market value.  Protect yourself.  If you overpay at the beginning, you're going to take a huge loss when you go to sell as the only other buyers out there are other investors looking to buy in low income areas-unless you can find another out of towner to sell to.

I closed on a nice 2/1 brick home in an area I would live in with my family for $34k off the MLS last week.  So it's not the low price that concerns me as much as it is knowing how some "wholesalers" operate.  If you're really interested in investing, I can offer you a great wholesale deal in St. Louis for $59k.  It's a better deal than 99% of the other wholesale deals floating around out there.

Thoughtful Mule

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Re: Potential Purchase
« Reply #4 on: February 04, 2015, 01:56:55 PM »
I hear ya bob.  I have the address and verified the value. There were plenty of comps in the neighborhood.  I also verified the rent (stated was 1K/mo). This is not a war zone, just a lower working class area. ROI was my calculation, not stated.  This guy doesn't play games.  Not all of the deals he presents are good, but repairs / ARV are realistic. I'd never make a move without doing my own homework.

I'll find out why its cash only.

I like the word whole-tailer to describe the people you mention. "Wholesale" deals that they may even pick off the MLS, haha.

jmusic

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Re: Potential Purchase
« Reply #5 on: February 05, 2015, 09:24:23 AM »
Most wholesalers operate on a cash only basis because of two factors: 
1.  As mentioned, the failure to appraise due to needed work.  This isn't necessarily bad, just means there could be issues beyond cosmetic.
2.  Many banks won't finance a retail buyer if there's a wholesaler involved.