What's the deal on package deals?

Question

Ok, I just had a deal fall through on an apartment building. I just could not put enough money down to get it. I guess it was a good thing because, I may have been jumping into real-estate blindly. So... I was looking into my options. There seemed to be some pretty too good to be true package deals out there. Is there any reason why a "Corp owned" house would sell for less than $40,000 near a big city like Chicago? What does "Corp owned" mean? and why would they sell me 8 houses, mostly 3 bed 1.5 ba, partially remodeled for an average price of about $40,000 ea.? I'm obviously missing something.

Don Konipol · Answer

Landlording residential property is no easy task, and the time you need to put in needs to be considered.  If you are managing your property and it is taking 10 hours per week, a fair compensation needs to be figured for those ten hours and that amount subtracted as an expense from the gross income.  There are expenses that do not occur every year, but whatever amount they average out to over a long period of time over a large number of properties must be considered.  With one or two properties, luck can provide below average or above average returns.   The larger the holdings, the more the income and expenses reverts toward the mean.

Jeffrey K. · Answer

Corp owned in an REO or forclosure.  You are jumping into real esate too fast.  Start reading the landlord forum and about the 50% rule.

They are selling them to you that cheap because that is all they are worth.  There are some nasty parts of chicago.

Jeffrey K. · Answer

That military program sounds good.  Are you sure you cant find a larger multi around the base for a reasonable price?

David Beard · Answer

If you're a buy-and-holder, I would also emphasize the importance of NOT SPENDING YOUR RESERVES, even if its for a down payment on another property!  If your property is flying along with few repairs/replacements, great.  But you should be building liquid reserves to handle the inevitable repairs/replacements/evictions.  Assuming a minimum of 50% expenses over time is very reasonable, so if your total expenses are running below this level then put the additional aside.  You may need to reserve more than this if the house if 100 years old, has very dated mechanicals, etc.

Marie S. · Answer

Not at all a silly question.

TN is where I was last stationed. I am in Germany right now. I will be back in the states around January. The property around Clarksville is extremely high because it's right by the post.  (Fort Campbell, KY) They never felt the decline in RE. Finding a "DEAL" is really hard. I'm looking in Chicago and the surrounding areas because that is where I plan to live and go to school when I leave Germany.
I own a house in Clarksville. I got a deal on my house, but I would like to get a higher ROI. You can't charge the same rent in Clarksville that you charge in Chicago and the suburbs. 
Depending on the military programs you participate in (you will be renting to soldiers 95% of the time) you are capped on what you can charge based on the pay grade of the tennant. I know the next question is why participate in the programs. Well, the post  :D housing office inspects the home before they move in, and when they move out. This is in addition to my inspection. If in an emergency, my contractor can't fix something, they send someone to fix it. My rent is taken directly from their paycheck. So I get paid before the tennant gets paid. If they cause damage to my home, again, it is taken directly from their check. It's a good trade off for being half a world away.  :D

Jeffrey K. · Answer

Silly question, but why arnt you buying stuff in Tennessee?  There should be better prices and you should be able to see the house and the market before you pull the trigger.  You can also self manage and save 10%.

Marie S. · Answer

Ok, I think I understand. Correct me if I'm wrong.

It may not necessarily be a good deal in this case, but there ARE good package deals out there. There isn't a one size fits all answer to this, I just have to make sure I understand the worth of each home.

If rentometer is not a good way to find comps, is there another site that can give me an estimate without bugging a real estate agent everyday? I start real estate course in Jan so hopefully I won't have to ask these type of questions.

I'll give them a call tomorrow. I truely feel this house is way under value. There are houses a couple blocks away selling for three and four times the amount. I was wondering if there was something obvious that I was overlooking.

And thank you for your input. I know something big is going to break. I'm due for it. Things have been going way too good. :-)

Jeffrey K. · Answer

What happens when you need a roof.  That costs a lot.  While your property does not cost 50% in one year it will average out.  I just put in a new furnace, new plumbing in kitchen, and had to replace a fan all in one unit in one month.  I did not spend a dime on it since I purchased it but this month seemed to be the month from hell at this unit.  $3000 in one month.

Buy your package.  You asked for our advise and this is mine.  Your expenses will go up.  Also, Rentometer is not a good way to find rent comps.  Drive the area and use craigslist.

Michael Underwood · Answer

YES some package deal are legit,some of the people or companies that sell them are not 
get a good lawyer and  research the properties 
some times it is possible to com across a great deal,try to find out why its being sold so low.        and be careful !

Marie S. · Answer

I think I understand the rule, which is why I don't understand the package deal.

I don't necessarily agree with the rule.

Here is the deal:

Most of the properties are in the Southwest suburbs. Average rent is between $1000 and $1200.(using rentometer) Anything under $1000 is considered low and anything over $1200 is considered high.

We are talking SFH. 3 bed, 1.5 ba

The purchase price is about $40000. Factor in a term of 30 yrs, 5.5% interest, $4,000 down, property taxes $4,900 a year, and a super-dupper primo insurance plan of $1200 a year I'm looking at a paying out around  $730 a month.

I'm not digging the rule.  I already own a property that does not cost me 50% of rent and I have maitenance checks almost every 4 mo. The only thing I have ever had to reach into the account for was a refrigerator and a garbage disposal. 2 years going strong.  Are things sure to break? Yeah absolutely. There are things due to break, but I have pretty good renters that follow the rules and an awesome contractor I guess.

My question is: Are package deals legit? The house theoretically is worth a lot more than $40000.

What's the deal on package deals?

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