First Single Family Home I'm looking at

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First Single Family Home I'm looking at

Yates Snyder
Raleigh, NC · Member since 2014 · 21 posts · 3 votes

Alright guys & gals, so it's not like its the first house I've seen but I need help analyzing if this might be a good buy. I don't really understand how to tell what the true value of the home is. I've looked and see it listed at around 60k but when i go onto my countys property search website it has the land value assessed around 25k and the building value around 20k so a total of 45k. The place looks a little run down but I can definitely see its potential with some landscaping and exterior work. No doubt there would be things to do inside since its an older house (asbestos problems?) and apparently vacant. It seems it was passed onto family through a will according to the property records. So, if its appraised at 45k and listed at 60k is it still a good buy? How do you determine what the real value is, because I recently inquired about a ladies house who put up for sale by owner signs and the house was appraised at 365k and wanted around 430k for it, stating the county records don't really mean anything. I'm a total newb and a little excited about this sort of cheap house. It's out in the boonies, but I could see potential to use the acre land to store boats charging a dry storage fee since it's pretty close to some local waterbodies if renting it out was a bust.  The tax bill comes out to $320 a year the record states. 2/1/0, so you're parking in the yard. Not sure what you could get for rent in the area but zillow says it'd be like $230/month for mortgage. What do yall think? What else do I need to find out and how? Should I avoid the real estate agent and somehow contact them directly (not sure how to get their contact info, as its not given anywhere)?

Thank you! I want to do my first deal! The plan would be to buy and hold or buy fix and hold to receive rent.

Yates

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George P.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
12y

help me understand. .. you are asking if the appraised value is lower than asking. .. If it's still a good buy?  It's terrible buy even without knowing anything else.  

If it's appraised at 45, u want to get it for at most 30k. 

You have to make money 3 times... When you buy under appraised number.  When u are renting- cash flow. And when you sell above the price you paid

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  • Stanley H.
    Investor · Raleigh, NC · Member since 2014 · 40 posts · 9 votes
    12y
    Hi there, I am from raleigh as well , just starting out. I think you should offer the appraised price or negotiate towards it. The difference between appraisal and purchase price should be minimal. If you were to get a mortgage you would only get upto the appraised value. Hope this makes sense.
    0Reply
  • Lucas Wagner
    Real Estate Investor · Madison, WI · Member since 2013 · 31 posts · 6 votes
    12y
    I'd be cautious how use appraised vs assessed values. Assessed is for city/tax purposes and isn't a great indicator of market (appraisal) value. Have you checked on recently sold homes in that area to see what they went for?
    0Reply
  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
    12y

    help me understand. .. you are asking if the appraised value is lower than asking. .. If it's still a good buy?  It's terrible buy even without knowing anything else.  

    If it's appraised at 45, u want to get it for at most 30k. 

    You have to make money 3 times... When you buy under appraised number.  When u are renting- cash flow. And when you sell above the price you paid

    1Reply
  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
    12y

    Not to mention that you can't get a loan if the purchase price is higher than appraised number

    0Reply
  • Yates Snyder
    OP
    Raleigh, NC · Member since 2014 · 21 posts · 3 votes
    12y

    OH. Okay. It is the assessed value. I'm not sure where to find its appraised value. It appears the surrounding houses are similar at a glance. I'd have to pull a lot of records probably. 

    But hey! have any of you new Raleigh investors had any luck so far? I'm interested to hear your experiences.

    0Reply
  • Yates Snyder
    OP
    Raleigh, NC · Member since 2014 · 21 posts · 3 votes
    12y

    @George P. I have a question for you. You say that you have to make money 3 times. If you plan on buying and holding a property and it costs maybe 60k to purchase at full price. Is it still a bad investment if you pay full price since after all, you won't be paying the mortgage, it'll be someone else. I assume it loops back to ROI if its worth what you could be doing with your money otherwise, but just curious. Excuse the dumb question.

    0Reply
  • Andrew S.
    Investor · Raleigh, NC · Member since 2013 · 1k+ posts · 708 votes
    12y

    @Yates Snyder you get an appraisal by hiring a certified appraiser (will cost on the order of 400-500 dollars).  If you intend to get a mortgage for the purchase, the lender will require an appraisal and as others have said, they will only lend a certain percentage of that appraised value - regardless of what the purchase price is.

    You can work with a realtor to help you gather comps for any particular neighborhood.  The appraiser, if you hire one, will also generate comps for their analysis.

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  • Yates Snyder
    OP
    Raleigh, NC · Member since 2014 · 21 posts · 3 votes
    12y

    @Andrew S. Thanks for the information. At what point would you personally determine that you should hire a certified appraiser? I'm just wondering if in general a realtor along with me viewing the selling history of neighboring houses would be sufficient. If I pursue the property, I'm hoping the family wouldn't mind unloading the house cheaper for a couple thousand cash upfront and talk to them about owner financing (if that's a good idea, need to review that topic) since no one actually lives there.

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  • Jason Kha
    rosemead, CA · Member since 2014 · 57 posts · 6 votes
    12y

    Hello @Yates Synder, there is no dumb question. I believe you need to get Real Estate Agent to help you if you are decide to buy your first house. The reason I recommend you should hired Realtor because they can run Comparable Market Analysis (CMA) on your Subject property. I believe Assessor value just for tax purpose (correct me if i'm wrong) I don't how much do you know about the Real Estate.

    so here the quick run down for you:

    Find similar property surround your property within 1 miles and within 3 to 6 months sold property. Similar means bedroom/bathroom, living square, lots square, and Years. After you find similar property, then look at those property sold price compare the price of your property. Do you have a lot of Cash buyer in your area?  After look at those similar property price and determine how much competitor do you have in your market, then you can determine the purchase price. 

    haha I hope I'm not confuse you. If you need help, just let me know.

    0Reply
  • Matt Rothwell
    Investor · Arden, NC · Member since 2013 · 87 posts · 35 votes
    12y
    Raleigh a tough market for people just starting out. Is this house something that you'd buy in cash? If not, you're probably out of luck. Because here's how the scenario is going to work: You'll offer the appraised price, then get out bid by somebody paying cash. -or- You'll offer asking price, outbidding someone who offered cash somewhere between asking and appraised. You'll spend the money on inspections, appraisals, surveys, etc, then you won't be able to finance because the appraised value is lower than the contract value. You'll then ask the seller to lower the price to the appraised value so that you can finance the house, and they'll refuse because there's a cash offer on the house as a backup. Bye bye house. -or- You offer cash at asking (if you have cash), get in before the others, and get into a bidding war. You "win" the house, and you'll probably cash flow okay, you just won't ever be able to get out of it for what you paid because you paid too much.
    1Reply
  • Ryan Fitzgerald
    Professional · Raleigh, NC · Member since 2014 · 29 posts · 5 votes
    12y

    @Yates Snyder That is a great question, thank you for posting it... There is a lot of newbies just starting out who don't know the answer such as myself. Your creative thought process is great... you have a plan B (potentially using the land to store boats, not a bad idea). 

    IMO @Jason Kha gives you a great starting point to find your answer; is the home a good buy or not? You can always offer the seller under the listing price, and making your first offer will be good experience... Never be afraid to walk away if it's not the right deal. You make the money when you buy, and there will be other deals. Stick to your plan, remove emotion.

    @Matt Rothwell Don't mean to be ignorant, just curious why Raleigh is a tough market for someone starting out? 

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  • Matt Rothwell
    Investor · Arden, NC · Member since 2013 · 87 posts · 35 votes
    12y

    @Ryan Fitzgerald : Raleigh is tough because there's a ton of hype surrounding it.  Just about every time a magazine has a "Top Ten Best Places to Live" article, Raleigh is mentioned.  Hell, I've got Raleigh as a keyword alert on BiggerPockets, and I get several alerts per day with people from the Northeast posting about how they want to invest in Raleigh.

    I'm not going to lie, its a nice place to live and almost lives up to the hype. Its got lots of parks, great restaurants and bars, and relatively low taxes in comparison to its more northern neighbors.  Its also close enough to NY/NJ, where there's a ton of money and un-affordable housing and taxes.  All that boils down to it being a crazy seller's market right now.  

    I'm not saying you can't make money on Raleigh real estate, I've met several people that are killing it right now.  But they're Realtors and wholesalers, not buy-n-hold'ers.  

    1Reply
  • Ryan Fitzgerald
    Professional · Raleigh, NC · Member since 2014 · 29 posts · 5 votes
    12y

    @Matt Rothwell Thank you, great information. I'm going to reach out separately don't want to hijack the great thread by Yates.

    @Yates Snyder Keep us posted on how the search for your first home goes!

    0Reply
  • Ricky A.Pro Member
    Rental Property Investor · Chapel Hill, NC · Member since 2014 · 135 posts · 112 votes
    12y

    @Yates Snyder, welcome.  There's been a lot of good responses.  I'm going to try to pull some of it together because I think it's valuable to know where numbers come from because it helps you determine how best to use it.

    As @Lucas Wagner mentioned, what you were originally referring to as "appraised" value appears more to be "assessed" value based on your original post, and assessed value is usually only useful for tax purposes.  One reason assessed value isn't necessarily a good indicator is because the data can be old.  In most (if not all) NC counties, tax assessments are done every 8 years.  A lot can happen in 8 years.  Neighborhoods can improve.  Neighborhoods can decline.  So the base assessment data could just be old.  

    However, another reason assessed value is not a good representation of actual value is HOW it's determined.  The county assessors aren't going in and determining the value of each individual property.  Instead, they are using "big data" about lots of properties sales and applying a generalized formula based on certain variables.  They're doing it basically mathematically for all the properties in the county for the assessment year, so it doesn't accurately reflect differences between individual properties.

    Sites like Zillow are doing a similar type of "big data" analysis of sales data to determine what an individual property might be worth.  Although their estimate may not be great, I'd definitely use it over the tax assessment because 1) they are factoring in real-time data not just updating it every 8 years and 2) they have more of an incentive to refine their  estimation process than the county tax office does.

    On the other end of the spectrum is an actual (certified) appraisal.  The method the appraiser uses is to find comparable sales (aka "comps") to the subject property.  The goal is to get recently closed sales that are as comparable to the subject property as possible and to then determine the estimated value of the subject property by making adjustments for the differences between the comp and the subject property.  There are lots of differences that could be considered (e.g., house size, lot size, finishes, garage space, swimming pool, sales concessions, etc. ) 

    Now, you don't want to order an appraisal for every property that you're interested in because that would be expensive. That's were a good real estate agent comes in handy. A good agent who really knows that area can help point you in the direction of the fair market value of the property. Although you can get some sales data from Wake county's website, the data from the MLS has more detailed info to help you determine differences. For example, if a house "sold" for $70K but the seller paid $3.5K of closing costs (i.e., a sales concession), the house really sold for $66.5K. That's a 5% difference that you probably can't see on the county's website that you could see via MLS data.

    Anyway, sorry for the long post, but I hope some of this helps.

    1Reply
  • Lucas Wagner
    Real Estate Investor · Madison, WI · Member since 2013 · 31 posts · 6 votes
    12y

    One thing worth noting (this is probably regional) is that the assessed value gives you the tax amount to incorporate into your projected costs, but in some areas that number will be adjusted as soon as the property changes hands.  Where I am (Wisconsin) the city comes out and does a re-assessment which almost never decreases and almost always increases which will drive up the tax burden.  It may not be a lot, but if the margin is thin, it may make a difference.

    0Reply
  • Account Closed
    Real Estate Investor · Houston, TX · Member since 2014 · 42 posts · 5 votes
    12y

    Your really don't need the problems of holding costs. Period. 

    The seller is trying to make a profit by pricing the home at 60K, which means that there is not much profit for you as an Investor. 

    My suggestion is that every home should be sold before it's bought so that you eliminate risks, stress, and pressure. 

    I recommend starting with a home-buyer instead of the deal. It would be very easy to lose money on the transaction that you are describing. The risk out weighs the gain. 

    Barry

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  • Yates Snyder
    OP
    Raleigh, NC · Member since 2014 · 21 posts · 3 votes
    12y

    @Account Closed What do you mean I don't need the problems of holding costs? It sounds like you think I plan on selling the house immediately upon purchase. I was thinking of more of a buy and hold, where I would have holding costs while waiting for a tenant... but I'm not quite sure what you were talking about. 

    Your also said that a home should be sold before it's bought. Does this mean if I was to try and fix and flip the property I already need a buyers list? Then how would I get a buyers list without going ahead and putting the house under a contract to buy? I really need to look at the actual documentation involved in buying a house or how to control a property without actually buying it. Lots to do, but please weigh in on the above.

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