Need honest brutal opinion !!!!

[Josiane Calderone]

Hello BP I live in the Los Angeles area ( West Covina ) and want to get my foot in the door with real estate. Properties where I live for a 3-1 SFH are valued at about $550k. I found a property that needs tons of work and I am currently negotiating at mid $350k but I feel like the most I'd pay is $400k am I cutting my profits by coming up that high ? They're asking price is $500k. I was thinking of buying the home and living in it while fixing it over the years. Then I would probably pulling the equity and reinvest it, or should I pursue a duplex or triplex. I just don't know where to start.

[Mike Cumbie]

Hi @Josiane Calderone

For Brutal and Honest I will say you have to come up with the real numbers. Around $550K for houses in this area is not a solid item. How many comps have sold? By comps the colonial 3 streets over when you are looking at a ranch is irrelevant. The one 4 doors down that happens to be in a different school district or the Raised ranch with 1200 more square feet are all useless. So make sure they are real solid comps or have been adjusted by using a whole lot more data (adjusting for ranches and sq feet). You should be able to get a decent "if this was all fixed up it should sell for number".
Thre next thing is repair estimates. You said "needs a whole lot of work". That could mean all new carpet and paint or new foundation. Both have different costs so make sure you know what you are dealing with. Once you have those you can start applying some formulas. With the data presented $400K can be a steal..... or it can be a fools bet. You need to get the data to make calculated risks.
You can never account for everything, but the more you can plug in the better your odds are. But don't get caught trying to analyze so much that you miss out taking action. (Value if they bring in a new sports team, value if a dump is put in next door, value if the bus route stops, value if they hire 400 new police officers and crime drops, value if a new ice cream shop goes in next door)
Good luck!