Should I still bid property? Cold feet...

Question

Found a nice $80k property that apparently was rented out for $1100. 1% rule check. Did some calcs and seemed like a good idea. Bid $75k (why not I thought) then got outbid with cash offer. Kinda bummed.

Now, similar prop comes up but ask is $90k. I decide to offer $84k this time. It's actually rented right now for $1050/mo with a 1.5 year lease left. Idk why but I have super cold feet now. I have the listing agents buy contract ready to sign but I'm wondering if I bid too much. I don't know why the first was $80k and this one $90k when they are very similar props. Maybe this one is in slightly better condition but can't be too sure. It's a brick townhouse.

I feel like capex will make or break this deal, if monthly expenses stay about 50% its a nice 12% COC return but if things go south a bit, say 60% monthly expenses, COC will drop to 7% And it's a matter of $100 bucks a month in estimations. If capex stays at ~$100/mo I'll be at 50% expenses or so and if capex goes to $200/mo average I'll hit 60%...

This is my first rental property. What do you guys think?

Joe Villeneuve · Answer

Blind bidding isn't the same as blind buying.

Order of steps:

1 - Decide what rehab you will do on ALL properties you buy, and price it based on the size of the property and/or the size of the rehab.

2 - Instruct your REA that you will only buy properties that needs only the rehab stated in Step #1

3 - REA brings you properties to make offers on.

4 - Analyze property and base rehab cost on step #1

5 - If your analysis says make an offer, then make an offer based on the maximum bid your analysis says you can make

6 - If offer isn't accepted, move on.  If offer is accepted, inspect property.

7 - If property inspection shows actual rehab needed "plays nice" with analysis rehab, then buy property,  If actual rehab isn't what you instructed your REA to ONLY bring you, then withdraw the offer.

This takes far less time for the REA since I'm only making inspections on properties I like.  The alternative is to inspect then maybe offer.  Which takes more time, making offers or inspecting properties?  Which demands scheduling and which one doesn't?

...and not, I have no problem withdrawing accepted offers.  That's what the inspection period is for, and my REA knew ahead of time what I wanted.  If they bring me something else, the onus is on them.

By the way, I work with a number of REA, and none of them have a problem with this, and all of them agree this method is one they prefer because it wastes far less time...and all of the agents are very experienced...and all of them are very good at filtering out properties before they bring them to me, so I rarely (less than 5% of the time), back out of a deal due to the inspection.

Stefanie Jensen · Answer

@Andrew Smith

Pep talk time:

Every investor has a different risk tolerance. It’s natural to feel anxious your first time purchasing a flip or a rental because You don’t know what you don’t know. No one starts investing with the perfect set of criteria and analytics. That comes with experience.

Even if you buy this place at 90k and it doesn’t end up being a cash cow, you can always sell it. The experience alone will be worth it. Once you jump, you’ll truly know if you can handle the risk.

Andrew Smith · Answer

Ok, i guess i didn't include some info. I run all my properties through dealcheck.io and also rentometer to check market rates. Again, this $90k ask unit is already rented out for $1050 anyways. When I put in all the info I have on dealcheck, everything boils down to what the capex will be in actuality. @Joe Villeneuve, I don't know why you are saying I did no analysis. Besides, I'm not sure what other analysis I'm supposed to do other than dealcheck. I also am unsure about how rehabbing works when there is a tenant that already lives there.

My offer has contingencies for inspection and an acceptable lease that is already in place.

@Kenneth Garrett I have gone to many properties and I don't really know what to look for as far as things that need repair so this is the first one I actually decided to not see myself and just have the home inspector tell me whats wrong with it should my offer get accepeted.

Anna Laud · Answer

You COC will be cut in half with a minor 10% change... bet on that 10% change lol.

Rentals and all investing like this is best done with a 5 year window and then working backwards, much less would need to happen for this to be a "good deal" in five years so on rentals I go with that and the 10k will be nothing.  This assumes however that you have a good job/income that you are passionate about and you can and are ready to go 3-5 years with no money coming from this.

If that isn't the case then wholesaling or other cash intake strategies are better.  Hope that helps.

Joe Villeneuve · Answer

If I were you, I wouldn't have cold feet...my feet would be just seconds from frostbite.

You did absolutely no analysis (1% rule isn't analysis...it's guessing), you're "almost bids" are based on who knows what, and there isn't a number you are using that is set in stone.

Yep, I would be thanking God that your feet are cold.

Kenneth Garrett · Answer

@Andrew Smith

I understand there are investors who don’t look at properties and buy them without seeing them.  I do not subscribe to that theory.  It’s part of your due diligence.  Look at the property, analyze the repairs, is the current tenant paying rent, review the lease, etc.  Do not put in a bid and then bail after you look at it, it’s a bad business practice and your wasting the sellers and agents time.  It comes off the market even if only for a few days.  If this is an auction then I always try to find a way to look at it before I blindly bid it.

Kenneth Garrett · Answer

@Joe Villeneuve

Maybe I wasn’t clear on my post.  Viewing the property is different then inspecting it.  Either you or a member of your team (could be your realtor) should view the property before making an offer.  After acceptance the inspection comes next.  If the inspection turns out to require major repairs outside your initial assessment, I agree cancel the contract or re-negotiate.

Joe Villeneuve · Answer

I wouldn't rely on their analysis.  The sold comps they use are all over the board, they use comps that are over a year old, and a wide range of sizes.  They just take them as a group and assume that they can use cost per sq ft and that makes it ok...it doesn't.  Market analysis is the most important analysis you will do.  It needs to be very specific, and they generalize it to the extreme.

Rental comps are no different.  Rehab estimates I don't even want to get into.

You need to learn how to analyze the specific property, and not take shortcuts.

Ray Lin · Answer

I would recommend that you perform research analysis in your market area. $90k is a good deal if all houses in the area is selling for more than $140k. If the houses are selling around $90-100k, than it's not a deal in my opinion. I think a deal is when you have instant equity. I just purchased a house for $65k, need about $25k rehab. The houses in the area on the MLS is asking $125k+ and another house is under contract for $160k.

In the beginning, I was tempted to buy anything that comes my way. But stay patient, save up cash (war chest), when the deal come, get ready to buy.

David Avery · Answer

Bought tens and tens of 4 plexes in Ogden Utah without seeing the inside!!

When the numbers are great, even if you have to gut them and still make money!

No brainer!!

Should I still bid property? Cold feet...

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