First Property Ever. How does it look?

Question

Hi all.  I recently funded my SDIRA and I plan to make my first rental investment ever inside of it.  I have found a house on Roofstock that I want to go for.  I am using Roofstock because I'm from Oregon and it's nearly impossible to find the kinds of houses that are available on Roofstock for the money I want to pay.

The house I'm looking at is around $80K.  It's been on the market for over 400 days so I plan to offer $72k cash and will go up to $75K (the Zillow estimate for the property is $83K).  I assume the property will need ~$7k in immediate repair costs before being rentable.  Unlike many properties on Roofstock this one hasn't had an inspection yet but I plan to have an inspection contingency built into the offer so I can back out if repair costs appear to be much more than $7K.  After running some numbers I think the property would cash flow around $6K per year.  The other benefit of this property is that it comes with Roofstocks rent guarantee for a year where they will pay 90% of the estimated market rent for the property while I'm looking for a tenant with my property manager.  Obviously I plan to have someone in the property much sooner than a year but it's nice to have that little cushion to help avoid some risk.

So after saying all this I wanted to see what you all think about this.  Should I go for it?  As this is my first rental ever feel free to let me know if I may be missing things.  Really looking forward to everyone's advice and excited to get into this form of investing.

Rhonda Wilson · Answer

@Eric Schwake Congrats on getting started! If it's been on the market for 400 days, I would suggest offering a lot less than the 90% of asking price that you are considering. When you make a low-ball offer, you might worry about making the seller mad by offering too little and insulting them. After 400 days, I have to believe that the seller would be nuts to be insulted by any offer. Even if you offered $50k or $60k, the seller is most likely going to counter, not just refuse to negotiate.

Dmitriy Fomichenko · Answer

@Eric Schwake,

when using an IRA for a purchase you must pay for all the expenses from the IRA and all income must go into the IRA. You personally are not allowed to provide any service or anything of value to the IRA. Keep that in mind.

Rhonda Wilson · Answer

One of the best ways to determine market rent is to look through craigslist ads.

Benjamin Portnoy · Answer

I agree with @Rhonda Wilson. At 400 DOM, that's a potentially motivated seller. Get the conversation started with a low-ball offer and see how they respond. The worst they can say is no (or nothing), at which point you can always go up.

I learned my offer strategy from Emeril (BAM)...start by putting less of one ingredient than you think you'll need into a bowl of ingredients...you can always add more, but you can never take out what you've already put in.

In other words, you can always offer more, but it's much tougher to offer less once you've shown your cards and offered too much!

Another thought...call the agent and find out WHY the DOM are so high...understand the reasons why this property hasn't sold before you go further. That's ammo for answering the NEEDS of the seller, and added awareness of any potential minefields you'll be stepping into if other parties who have made offers know something you don't.

Eric Adobo · Answer

no way you cash flow $500 a month on a property on market for 400 days.

What is troublesome is I saw the word Zillow in your post.

I could be wrong🇻🇬🇻🇺🇻🇬🇻🇳🇿🇼🇸🇰

Rhonda Wilson · Answer

@Benjamin Portnoy Ditto! LOL.

@Eric Schwake There is probably a reason why the DOM is so high. Be ready to do a LOT of due diligence. Are all the square feet permitted? Is there some tax, lien or maintenance issue? Are illegal activities happening there? Be sure to google the property address, I have come across sex offender tenants and news of big-time police drug raids by doing that. I don't mean to scare you away from investing, on the contrary, only suggesting that you dig deep.

Jennifer Z. · Answer

@Eric Schwake thanks for the question!  I had not heard of Roofstock before.  It is an interesting business model, but they do charge a 0.5% fee for their part.  So, I would include that $4000 in your discounted offer.

Also, if it has been on the market for that long- over a year, then I would offer a much lower cash price.

You didn't say what the rent was either?  And, I would want to know what the estimated market rent is to determine if that is a benefit to you.

As far as the deal, everyone runs their expenses a little differently.  I am a more conservative investor, so I would budget 40% expenses which gives a buffer for unexpected issues and eases my mind :)

Eric Schwake · Answer

@Rhonda Wilson The property manager I'm looking to use gave me a pretty detailed report from Rent Range.  Have you ever heard of them?  As far as the offer the property sold in 2012 for $65k. Would it make sense to offer $60k.  I was thinking I could start at $68.  Roofstock will pay for a full inspection as soon as I place an offer.  If there are massive maintenance issues that cost much more to than the $7k Roofstock has estimated then I could back out of the deal.

Tom V. · Answer

Buying your first property off of a web site with your IRA money sounds like a recipe for heartache.  How well do you know the neighborhood?  Why $7k of repairs?  What happens when you realize the property manager is a clown?  What about the fees you pay your IRA custodian.  Is that in your spreadsheet?  You can be certain the Roofstock does not give a rats rear about your one-off house purchase.

You should not go for this.  You should find a rental you can drive to and buy it with your regular non IRA funds.  Don’t waste money you have put away over a long time on a first flyer in the landlord game.

FWIW yes I have an SDIRA and I am a landlord.  Roofstock is for people who want to convince themselves a house is the same as a mutual fund...  Good luck with that.

Eric Schwake · Answer

@Rhonda Wilson definitely planning on plenty of due diligence.  And seeing as this money is retirement money that I previously had 'safely' tucked into the stock market I'm even more careful about it.  One thing that makes me a little more comfortable is that's it's listed through Roofstock so they have done some initial due diligence becsause they don't want an awful property to tarnish what they are trying to do. I sent a message to the person I'm working with at Roofstock to see if he can let me know why DOM could be so high.  Because I'm remote I've already done a large 'tour' of the area in Google Earth and it looks like a good area.  Plus good schools are close and crime rates appear low.  Hoping it works out.

First Property Ever. How does it look?

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