Offer Accepted - My First Investment Property. I'm scared now!

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Offer Accepted - My First Investment Property. I'm scared now!

Lisa Goodwin
Portland, OR · Member since 2012 · 21 posts · 1 vote

I've been making offers on short sale properties for two months now. Yesterday I got an acceptance.

I don't have any real estate trainings, all I know is what I have learned from my father who retired at 45 after doing real estate for 20 years.

I'm buying this property in Suprise AZ for 100K. It needs new carpet, painting and landscape. After all is said and done, I'll be out $107K-$110K and it should be apraised for about $130K.

Here is my plan and please let me know what you think of it.
Finance the house and get my $107K out after I have a tenant in and move on to the next property and continue doing the same.

I have a business that is doing well and I don't need to be making money in real estate at the moment.

I am going to form a real estate LLC and as long as the LLC breaks even I'm happy. So, if the rent covers the mortgage, managment, maintanance, taxes, HOA and etc I'll be happy. My goal is not to invest any of my own money into the LLC, just build equity for future.

When the market recovers, I plan to sell all the properties and get into commercial real estate, maybe an appartemnt complex and if the cash flow is equal or more than my current income I can retire then :)

I'm very excited and scared at the same time.

I look forward to reading your inpusts!

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Levi Gale
Real Estate Investor · Tempe, AZ · Member since 2011 · 102 posts · 27 votes
14y

Well not sure what part of Suprise it's in, but you may be able to save some maintenance costs if your in the newer area. At least that's something to look forward to. I think you can find that type of "deal" very easily here, but quite frankly I think I would pass on it. It's your first investment home, it's in a different state, and your numbers really aren't that great (of course I could change my tune with more details). If you are willing to invest out of state, why not get a decent return?

I don't hit 50% on my rental expenses, but I also don't use a property management company. If you do I would still expect you to keep expenses under 50%, especially if you are in the newer area. In my opinion you can do better than that here, but make the decision that best suits your strategy.

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  • Mike McKinzie
    Investor · Westminster, CO · Member since 2009 · 1k+ posts · 1k+ votes
    14y

    I own a rental house in Surprise, AZ so I have experience with that market. Even though I have never seen the house and will probably NEVER see the house. I paid $120,000 for it and rented it for $1,100 a month and am making good money on the rental. I was lucky in that the seller installed all new appliances, paint and carpet, and did a general overall refurbish on the house. It rented the first week I owned it, little down time.

    I see lots of advice on here, most of it well intentioned but not all of it well informed. With 30 year Tbills hovering between 2% and 2.5%, I do not see doubling that as a bad return. I will take a 5% return on a house that has a better than 50% chance of doubling in value in ten years rather than a 10% return on a house that will never appreciate.

    Sure, there are 10%, 15%, 20% and even greater returns to be had in Real Estate. Flipping, hard money loans, "ghetto" properties, wholesaling, etc.... But comparing Atlanta, Dallas, Memphis or other areas to Phoenix is not a fair comparison. The reason that old saying about Real Estate, "Location, Location, Location" exists is because each location is unique, offers varying types of investments with varying amounts of returns.

    While this is not a "home run," it appears to be a solid deal and a good first step in Real Estate Investing.

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  • Michael D.
    Investor · San Jose, CA · Member since 2011 · 355 posts · 90 votes
    14y

    Lisa Goodwin,

    I could understand if you lived there - and it was therefore in your backyard, but since you've decided to make the whole country your backyard as I have, why such focus on Surprise?

    With a cap rate around 7% (mentioned optimistically by other poster), the price range you're looking at is probably close to the top unless rents go up. Do you think they will?

    Why not explore some of those other areas where BP members are getting 10%+ cap rates? Others have already been mentioned, but I'm rather fond of Pittsburgh right now.

    When properties are getting 10 or more offers on day 1, why do you think it is a deal?

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  • Mark H.
    SFR Investor · Phoenix, AZ · Member since 2009 · 484 posts · 181 votes
    14y
    Originally posted by Michael D.:
    Lisa Goodwin,

    I could understand if you lived there - and it was therefore in your backyard, but since you've decided to make the whole country your backyard as I have, why such focus on Surprise?

    With a cap rate around 7% (mentioned optimistically by other poster), the price range you're looking at is probably close to the top unless rents go up. Do you think they will?

    Why not explore some of those other areas where BP members are getting 10%+ cap rates? Others have already been mentioned, but I'm rather fond of Pittsburgh right now.

    When properties are getting 10 or more offers on day 1, why do you think it is a deal?

    Surprise Arizona had a population in 2010 of 117,000 people.

    There are 29 single family homes in Surprise for sale today,in the $100k-$130k range and five of those are either "new" or "back on the market" - today.

    That's a really tight market - when a city with a population of 100,000 people has 29 low-priced homes to pick from. Most have been available for sale for less than a month, several are short-sales, Hud-homes, and "as-is", which all tend to turn off normal buyers.

    The cap rate doesn't tell the whole story. With 25 bids on the property as a short-sale, they no doubt could have gotten much more as a "normal" sale. Appreciation is already baked-in to this deal.

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  • Levi Gale
    Real Estate Investor · Tempe, AZ · Member since 2011 · 102 posts · 27 votes
    14y

    Well put, and very accurate this deal does meet her goals.

    Congrats on your first investment, and while I don't feel it is an awesome deal it is a deal, and it will make you money. But most importantly it's a deal that meets your goals.

    1Reply
  • Lisa Goodwin
    OP
    Portland, OR · Member since 2012 · 21 posts · 1 vote
    14y

    I talked to my agent yesterday and requested a $3K in price reduction, not that it makes a big difference in the deal.

    After the inspection, we made a list of minor things that need to be rapaired and serviced and asked for the price reduction!

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  • Albert Hasson
    Investor · Paradise Valley, AZ · Member since 2012 · 361 posts · 214 votes
    14y

    Good luck with that. It will have to go back to the bank for approval which could take weeks or months. You probably signed something when you made the offer acknowledging that the house came in "as is" condition. If they do another BPO you could even lose he deal.

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  • Mark H.
    SFR Investor · Phoenix, AZ · Member since 2009 · 484 posts · 181 votes
    14y
    Originally posted by Albert Hasson:
    Good luck with that. It will have to go back to the bank for approval which could take weeks or months. You probably signed something when you made the offer acknowledging that the house came in "as is" condition. If they do another BPO you could even lose he deal.

    +1, major tactical error..

    a 30 day delay puts you dangerously close to closing after school starts, and the rental market here cools down. saving $3k on the purchase might cost you a month (or more) in vacancy expense, and another BPO done today would be a disaster.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Lisa,

    I am kind of at a loss for what you are trying to do.With any investor it is what amount of cash do they have and what is the short term and long term investment goal??

    You seem to be just wanting to go out and buy something.Do not follow the herd mentality!

    Just because something gets 20 offers does not mean it is a good buy.It just means inventory is low in the area or many people have more cash or credit than common sense when it comes to investing.

    If you do not need the cash now and want to build up equity and future potential cash flow than triple net might be something you look at.

    Typically the investor cycle has someone renting out a house,then a few houses,then a small apartment,then 1031 into a larger apartment,then maybe go into self storage,office,etc.

    Most investors understand homes but not the commercial part or the apartment part.Once an investor goes through this cycle they find they get tired of being a hands on landlord.

    This is when they look at triple net.The barrier to entry with triple net is what makes many start with houses instead.

    Most minimum pricing starts at 700,000 and goes up from there.Most lenders will not fund a loan under one million
    so you are looking at all cash or a larger property with a loan at 95% ltv to 75% ltv depending on what it is.

    So you really have to have 250k to 300k cash to get started or equity proceeds from selling off something else to roll into it.

    Even with a house and you put in management you have to watch them to make sure they are doing their job.Any time taken away from your existing business of what you do best reduces your income.

    Now if you do RE full time and that starts outpacing your existing business then you might look at switching.

    With triple net typically you can get a 7 to 10 cap on purchase and rent bumps ranging from 1 to 3 percent a year.This is for restaurants.

    Some other product types such as pharmacies you get no rent bumps in the initial term.

    A house purchase might not be your best option.If you could explain what you are trying to do more it would really help to get a direction.

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