Is this a good investment to pursue?

Question

Dear Experts &  fellow Home Investors,

Happy Thanksgiving to you all!

I am a newbie from Seattle and have come across an apartment unit for potential investment (cash flow until flip when the market improves).

What caught my attention and interest in this property was the price, considering the location. This is the lowest price property I have found so far that matches my investment appetite (of $150k that results in positive cash flow) plus the fact that it has been listed for over 100 days now.

The numbers however do not meet the expert investment criteria of 50% rule!

This is a 1979 construction, 2 bed 1 bath home (890 SFT with washer-dryer not in the unit) on the market for over 100 days now. The apartment needs a rehab of about 5k before we rent it out.

Quick numbers for your reference-

1. Asking Sale price: $135,000

2. HOA dues for this unit: $320

3. Property tax is $950 annually.

I am making the following assumptions:

1. This unit will fetch a rent of $1100 monthly.

2. The rehab price is about $5k

3. The owner will be willing to accept an offer of $115,000.

Link for your reference here: https://www.dropbox.com/s/7bz45h4z0jbd5g8/Potential%20Investment%201.xls

Appreciate your suggestions for this property and any other advice you may have for a newbie like me.  So far, my focus has been on property areas where there is high demand for rent and resale. I am yet to across any property here in the Seattle area that meets the 50% rule. Am I looking at the right market?

Thanks in advance!

Jo

Account Closed · Answer

Jo,

I search all over the MLS in a ten mile radius of the Seattle city limits looking for "decent" cash flowing duplexes for about a year. I made an offer on a few of the ones I found and they always had major issues (cracked foundations, cracked sewer lines, etc.) that made them cheap enough to make the numbers work.

Finally, I moved north to Everett and purchased two duplexes where the cash flow is better. Currently, I am pursuing opportunities in Everett, Tacoma and even Longview.

If you must stay in the "Seattle Area", Burien and Rainer Beach are where the best cash flow exists. I have had my eye on this property for a while http://www.redfin.com/WA/Burien/15002-4th-Ave-S-98148/home/338527

Happy Hunting!!

Zach Schwarzmiller · Answer

Welcome Jo! Grant has a great point. I personally won't buy within core as the returns are not as great; however, some of my clients will ONLY buy core, but they are usually factoring in and okay with less returns as they consider it less risky and easy liquidity if needed.

Stephanie Dupuis · Answer

Hi Jo -

I'm familiar with the Seattle market. So is @Zach Schwarzmiller

and several others (go to the Find Members section under Network and search your area). Seattle is difficult in my opinion. Others have different strategies.

What are your buying criteria? What type of CF, CCR (COC), etc. are your buying criteria? Range from home? (How far from home are you willing to go in the "Seattle" area?)

This will help us help you. There are places to find CF properties, but it depends on your criteria. I'm not finding properties right now on the MLS that fit my criteria, but it fits other's criteria and may work for you. You may need to use other strategies to find properties, also. This will depend on your criteria. So...let's start there.

Did I use the word "Criteria" enough?!?!? (big smile)

Paul Timmins · Answer

@JO DIXIT

Welcome.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having 40 past ones to catch up on.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who will provide deals and rehabbers.

For highest and best use you might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.

Good Luck

Paul

JO DIXIT · Answer

Thank you William,

I am glad I found Bigger pockets website...hooked on to the podcasts this holiday season:)

Let me spend more time on evaluating properties and honing the skill of catching the right fish:)

Happy to have all you experts around to be able to make the correct choices as I explore this new world of REI!!!

Happy Thanksgiving,

J

William T. · Answer

@JO DIXIT I have a couple of suggestions...  I would take the time to educate yourself to know when you have a good deal.  I would read the BP investing guide (link below) to gain some basic knowledge and start reading a lot of the forums.  Listen to real estate podcasts, Bigger Pockets is the best one to start with.  Spend at least an hour towards learning everyday with evaluating properties, financing the deals, and marketing.

JO DIXIT · Answer

Thank you so much Steve for your response and helping me fix the CoC formula value.

If you are familiar with the Seattle RE market...can you suggest the right areas to look at for cash flow and flips.

Appreciate it and Thank you once again:)

Jo

Steve Foth · Answer

If you want cash flow, and this will negatively cash flow, then the COC would also be negative.

On your spreadsheet,  B51= C25/B36.  B51 should =C29/B36 and would show -3% CoC return.

Is this a good investment to pursue?

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