Looking for some help in analyzing property - Is this a good buy?

Question

Hi BP Community,

I am a newbie looking at different properties and would love some help to see if this is a good deal/buy or not. Please let me know if there is any more information I should be considering, and sorry if I'm providing too much info (but better more than less?). Thanks in advance!

80 Yr. old duplex priced at ~$110,000 (reduced twice since December of last year, initial price listed at $135,000)

Each unit is 1 bed/1 bath, total square feet living is about 970

Taxes in 2018 were $515

On the website it shows property tax as $43/mo and home insurance as $52/mo

Assessment was about $4,500 (why is the difference so large from listed price?)

Rent is $500 per unit, at a total of $1,000 (would look into increasing to $600-650 after some rehab and I would have tenants pay own utilities if they're not already)

It would require painting, new floors, and cabinet resurfacing/replacement at the least. Additional things: windows look old though functional, exterior house trim needs painting, replace sink vanity in bathroom.. not sure how to calculate the cost of this.

I would put 20% down via conventional loan.

Also this home has been on the market for almost half a year -- what are the chances I would be able to get it at a lower price?

Please let me know if there is any additional info I would need to provide. Thank you!

Jaysen Medhurst · Answer

@Hana Bae, this isn't hitting the 1% rule, so it's going to be super tight. If you can actually bump rents, might be better, but what's the reno cost? You have a lot listed. If you're not comfortable estimating the costs, get in there with a contractor. One of the biggest traps is underestimating reno cost.

At $100k, I'm showing this only cash flowing ~$150/month. Too low for me. Now if you could get it for $80k, and bump the rents...

There's an old saying among investors, "If you're not cringing when you make the offer, you're offering too much."

Hana Bae · Answer

@Jaysen Medhurst

Thank you for your insight! I am also considering more local buys but my money goes so much further outside of CA!

It’s been super hard to settle on a market, maybe more locally is the way to go. Appreciate the food for thought. 😊

Sanjeev Advani · Answer

@Hana Bae I would have to agree with @Jaysen Medhurst.  I have seen that it is better to be able to drive to your investment community, and there have been a lot of good deals in Bakersfield.  I have posted on the topic before if you would like to go through my previous posts.

Per your deal, I would have to say that you are cutting it close.  Yes the purchase price is low, but is the community on the upswing?  Also, with the work mentioned you would probably be looking at around $8000 so you would be into the property for around $120K and you would be able to collect around $1200 - $1300/month in rents which should be fine in the long run, but the major question comes back to, is this community a community that will be appreciating over the next few years?

Feel free to PM me to chat further.

Jaysen Medhurst · Answer

@Hana Bae, sure, if you can put together a great team, you can really be an owner from anywhere. If you can find a market that you can reasonably drive to, that would be my recommendation. Even if it's 3 hours away. That way you can take a day off and see a bunch of properties, meet whomever you need, etc. I think in the beginning this allows a lot more control and ability to learn.

I've heard good things about Vegas, that's ~4 hours.

What about Bakersfield? 2 hours away, looks like a decent amount of product. A few to look at:

https://www.trulia.com/p/ca/bakersfield/1207-monte...

https://www.trulia.com/p/ca/bakersfield/1317-berna...

https://www.trulia.com/p/ca/bakersfield/1000-eye-s...

Dan H. · Answer

I do not see this as a good investment for the following reasons:

- It’s 80 years old.  The maintenance and cap expense will be significant on this property

- the rent is too low.  When rents are this low the maintenance/cap expense is a large percent of the rent cost.  This it true even for properties that are not 80 years old.

- purchaser is out of state.  Not only does this imply PM fees but it also implies they cannot do any of the work themselves to save money.

- the price indicates that the market appreciation is unlikely to keep up with inflation.  This implies actual value in today’s dollars will decline.

- no market appreciation typically means no rent appreciation.  These units likely rented for the same price 10 years ago (in actual dollars) as today which in affect means the rent has declined by the inflation rate in spending power.

- the RE is languishing on the market.  This implies purchase is not for less than retail but it also likely implies that exit paths do not include an easy sell of the RE.

If you purchase this RE, where do you see the profit coming from.  Cash flow?  Appreciation?   I do not see it from anywhere.  Investors invest to make a return, not to invest without any return.

Good luck

Blake Edwards · Answer

@Hana Bae - Welcome to BP!  I can't recommend reaching out to others on here enough.

As long as you actually talk to your potential team on the phone, have a system in place where everyone is checking on everyone else, and aren't afraid to have high standards and be clear on your goals with them, I would say bust into any market you feel like after doing your research.

You will be surprised at how fast you become an expert in an area far away by simply analyzing enough properties and neighborhoods.

Good luck, and let us know how it goes!

Hana Bae · Answer

@Bjorik Mutize Hi Bjorik! If I find a reliable agent + contractor, would it be possible to have them do the walk through and let me know what needs to be done? I would prefer not to fly out for this, and I know it's possible (referring to David Greene's book on Long Distance Investing).

Thank you!!

Hana Bae · Answer

@Jaysen Medhurst I grew up in California and went to school in NY. Unfortunately all my close friends are either in LA, SF, NYC, Washington DC, or abroad and these markets are priced way above what I'm able to finance.

If I find a great agent, PM, and contractor through referrals, I think it would be okay to invest in a market I've researched as long as I vet them out thoroughly. Do you disagree?

Also if I buy a property with tenants and a good PM (hopefully) already in place, wouldn't there be a very low barrier to entry? Then after their leases expire, I can renovate the place but I would have that time to find a OOS investor-friendly contractor... correct?

I would love your thoughts on this. Thank you!

Bjorik Mutize · Answer

@Hana Bae I’d get a contractor to walk this property with you.

What are you budgeting for other expenses and where can you take rents?

Jaysen Medhurst · Answer

@Hana Bae, I recommend starting in a market where you already have "boots." Friends, family, college roommates, whatever. They don't have to be in the business, but having people to recommend RE agents and contractors or being willing to drive by a potential property at 9pm to see if it's sketchy is critical.

Don't just pick some random market where you have no connections. At least until you have some deals and experience under your belt.

BP is great way to start making contacts as well. I suggest following the local forums of the markets you plan to explore.

Looking for some help in analyzing property - Is this a good buy?

Most Popular Reply