Starting Out
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Updated about 1 year ago,
Santa Cruz—“Holy Cross”: To Bear or Not To Bear?
My husband and I are considering repurchasing a property we sold to friends 3 years ago on a street called Santa Cruz… hence the corny title. 😊 The property: 1900sqft, 3 bed/3 bath, built in 1951. It abuts a lovely park and is located in the southern sector of Dallas which has a low-to-middle income demographic. Our friends ended up renovating kitchen, redoing plumbing/electrical, and adding drainage and gutters. The current publicly published estimate of the value is $260k-$275k. We have the opportunity to purchase from them for $210k off market. We know the house in and out because we lived there for two years before selling to them in 2020, so the “cheap” selling price is not hiding anything we aren’t aware of. There was a flooding issue in one of the rooms during a 100 year rain that they spent $15k to mitigate in 2022. At this point, they already bought another house and don’t want to mess with putting it on the market, paying commissions, etc. I ran a net out calculation for them to show they could be walking away from $20k after all is said and done and they said they just want to sell to friends and move on. We would probably need to spend ~$3000 to refresh/make rentable.
Our financial sitch: we have $43k in savings and $30k available in a HELOC on our primary residence that has a fixed rate of 6.6%. As I'm trying to run numbers, given the interest rate will be close to 8.5% and the average rent is $1.30/sqft, it just doesn't seem like we would have much cash flow (20% down/~$168k loan @ 8.5%) HOWEVER, given that we can purchase the property way below market value and our goal is to hang onto it long term, set up an LLC to purchase when interest rates (hopefully) drop in the years to come, and pull out equity to purchase another property, we still think we should do it. There is also the opportunity to enclose a back portion of a carport that has easy entrance to the house that will add sq footage in the future (my hubs is in construction so we do a lot of the work ourselves or have access to subs at a discount). I have also looked into becoming a HUD landlord which would at last guarantee 80% of mortgage if things get even worse and people are defaulting on rent.
It feels scary to purchase something when the economy is so unstable and interests rates so freaking ridiculous, but my dad whose been in the mortgage banking business his entire career, said the rates we saw at 3% are just not the norm over the long term cycle. So a part of me is like “well, can’t sit on the sidelines forever, waiting for perfect conditions.” And opportunities to buy off market as first time investor don’t seem to come around very often, at least not this easily. Fundamental question: is the equity in the house long term worth the risk of a “break even” scenario for a few years if we can cover the mortgage in times of vacancy (barely, but we can do it)? Or is that even the right question? Ok, I’m done rambling. Appreciate any thoughts or advice…