Property Analysis and Tour - was my thought process clear?

Question

Hey there,I'm still a total beginner in REI, and while I don't want to get stuck in analysis paralysis, I'd like to offer a step-by-step analysis of the first property I've looked at. I don't think I'm going to go ahead with it, but I'd value any feedback you may have and mistakes I may have made. Alternatively, if there is an online group of folks doing something similar, I'd really like to join! I would value the opportunity to share thoughts and processes (and actual numbers, not only high-level concepts!) That being said, here is a zillow link to the property in question.Off the bat, it is very attractively priced at $89,000 and while not in the absolute best area, Temple, TX on the whole doesn't seem to be an awful area. So, I called the agent up and scheduled a virtual walkthrough. I don't currently live in Texas but am looking to relocate there soon to be closer to family in Austin. Before the walkthrough, I tried to learn more about Temple and this house's location in it. To summarize: this house is located in downtown Temple, which has a higher crime rate than surrounding areas, but the crime rate is still lower than the Texas average. Street view reveals mixed results. The houses one street over are wonderful, and it is on a cobble street which is charming, but it's also opposite HUD style houses and near a Jiffy Lube. Not great, but not the worst. The house itself is a duplex, but it looks like it can be converted into a single family home, too. It is 1440 square feet. This leaves room for multiple exit strategies: BRRRR, house hack, or fix and flip. So far so good. I did a quick analysis of recent sales of similar sized homes and with similar bedrooms and bathrooms in the area. It is my (inexperienced) opinion that the ARV is about $135,000. From the photos, it looks like it needs new kitchen countertops, new floors, doors, and paint. Perhaps this will cost $30,000. So 70% of ARV - $30,000 means I shouldn't spend more than $64,500 on the house. Hey, I'm not scared to make a lowball offer, and money is made when you buy! So, the agent starts taking me on a virtual tour. And says some very alarming things like, "there is definitely foundation damage!", "the roof has collapsed in the kitchen", "you have to be prepared to do plumbing, HVAC, etc." As this is going on, I'm tallying these costs up and they are obviously a lot more than $30k. While I appreciate the agent's honesty in this regard, he also disagreed with my evaluation and believes that this property has a $200,000 ARV. I found this difficult to believe specifically because he was so confident that this was the ARV (and as I've read on BP, no one can predict the future.) Besides, let's say the ARV IS 135,000, it's not like the agent is going to pay me the difference when it's time to sell!So, my options at this stage are to offer something ridiculously low, like $20k, and deal with the headaches of foundation repair, roof repair, HVAC, carpet, rentals etc., for a limited payoff. Or to walk. To me, it's not worth it and so I think I'm going to walk. In summary, while I don't want to get stuck in analysis paralysis, I'd value any input from the seasoned folks here on where I may have made a mistake in my thinking or approach. Furthermore, if anyone wants to start a group where we practice analysis and share our thought processes, let's give it a go!

Jeffrey Donis · Answer

@Giulio Brandi Foundation can be very expensive and not even worth fixing (if it doesn't make sense to, numbers wise). So, if the foundation is bad and causes expenses to eat into your profit margin, I would pass.

Pete Harper · Answer

@Cameron Davis Agreed, foundation issues are not a deal breaker. We purchased a 4-plex with foundation issues. We had an estimate for $27k in repairs. We took the quote back to seller and was able to get $27k price reduction. We turned around and did $12k in repairs.

Pete Harper · Answer

@Giulio BrandiThis unit keeps showing up on my Zillow search. I've watched them walk the price down on the property for a while now. Over 90 days on the market, originally listed at $105k, went pending in June, deal fell through, and back on the market. The story I see from the listing, you have a very motivated seller, buyer backed out in June. My guess is buyer found something in the inspection. See if you can get a copy of the report through your agent. First the positives; It's cheap, Temple is growing, to the south you have Austin, and to the North Waco with the Chip and Johanna factor. Close to I35 corridor. Negatives; It needs a lot of work. Someone tried to slap lipstick on a pig with some paint. Potential for undisclosed issues, asbestos, lead paint, and ...... Figure out what is wrong and how much it costs to fix. Not a great neighborhood, old town Temple, many similar homes, many in worse condition. The West side of I35 is better.

Gabrielle Parkey · Answer

I am a newbie as well, and I live in Temple. I could walk the property for you possibly.

Cameron Davis · Answer

My advice: Don't get freaked out by foundation issues. I've had a few foundations fixed... lowest cost was $3k and the highest was $8k. If you ever think repairs are needed, get a free estimate. It might be less than an a/c unit!

Giulio Brandi · Answer

Pete Harper · Answer

@Giulio Brandi The property is pending. someone has an offer in.

Giulio Brandi · Answer

Hey Gabrielle - thank you for the offer! I don't think I'm going to go ahead with this one. Are you interested in joining a newbie investor group? I'd like to talk through these kinds of things with people in a similar situation

Giulio Brandi · Answer

Agreed - if the ARV was 200+, sure - but for this one, I think I'll pass.

Giulio Brandi · Answer

Thanks Pete, appreciate the feedback. Let's see if an inspection report surfaces. That was slapping lipstick on a pig? It still looks like it needs a repaint! It looks like you're familiar with the area - do you think $135,000 is in the ballpark for ARV?