Buy And Hold Investors : does this deal fit your investment strategy ? Would you do this deal?

Question

I'm curious what other investors goals are when looking for their next buy and hold rental ?

Here's the details :

1/2 of a twin home in Wichita Ks 3 bed 2 bath updated for $101,000. Appraisal is $116,000 as is and its rent ready in a nice neighborhood. Would rent easily for $1200/month.

Would this fit your strategies ? Why or why not?

Aaron Mazzrillo · Answer

Personally, no. Not enough equity capture if I am the one bringing the money to the table. If it were seller financed with good terms or subject to a loan for the $101K, then most likely yes. Basically, you're getting a 10% discount and buying into an unknown situation. What is the next door neighbor like? Is it a rental also or owner occupant? Are there other houses in the neighborhood like this or is it in an area of SFR? I see lots of these attached single family houses built as tracts out here in California. They don't interest me. I think they are harder to sell than a townhouse because they are not that desirable.

I also think a 10% discount can be easily had on any number of houses just by shopping in the MLS. So that price point isn't that attractive for me as an investor looking for cash flow and an equity play. If I'm bringing the money, there ALWAYS has to be an equity spread.

Bradley Benski · Answer

@Westin Hudnall

It is very doable, the only thing I see is with the 15 year mortgage you are paying approx $218 more per month than a 30 year mortgage.  That could make all the difference between a property that cashflows or doesn't at this price and rent level.

What are your goals?  Hold onto the property forever, over 15 years, maybe 5 years??? Also, after the bank finance what is the plan?  Reinvest the money into another house or pay off investers/debt used to make the original purchase.

For me personally, doing a 5 minute peek the deal has potential but would choose to finance purchase up front 20% down on the 30 year mortgage for the extra $2616 per year in cash to my pocket.  I'd want to know about the maint status of the house, any large captial expense items that are defered (A/C, Heat, Roof, Paint, etc.) that will come up needing replacement sooner rather than later.  What about taxes and insurance. These would need to be known and plugged into my spreadsheet (J Scotts downloaded from this site) before pulling the trigger.

Anthony Gayden · Answer

When you say "twin home" do you mean a duplex? I have seen it before where each side of a duplex is individually sold, however I am extremely reluctant to do such a deal. If the owner of the other side essentially allows their half to become 'distressed' your property value will suffer a great deal more. Unless I could control the entire building, I wouldn't do the deal.

Westin Hudnall · Answer

its worth $116,000 . Seller listed last month on MLS at $120,000. Had 2 offers right away at $116,000 plus buyer paying $4,000 closing costs and the one he chose had their loan fall through 3 days before closing. I have the appraisal and full inspection report from that closing so their really is no "unknown" which is great. Plus - With me working a full time job and being the busiest part of our year ; I don't think a situation could get too much more ideal in terms of practicality (already rented; zero repairs and not fantastic but decent equity (13%)

Mark Ferguson · Answer

appraised value is not always market value.  @Westin Hudnall what do you think the house is worth?  I would not do A 15 year either If a 30 is available.

Ellis San Jose · Answer

Not enough equity spread for most pro buyers.  Especially since it isn't a sfh, it is less desirable as well.

Andrew Syrios · Answer

I try to buy for buy and hold the same way I do for flipping (except in lower end markets). I do focus more on rent/cost or cap rates, but there still needs to be plenty of equity. $15,000 of equity is a bit tight for me and the rent/cost is only 1.2%. I want to be at least 1.5% unless it's in a really nice neighborhood. I would probably pass.

Bradley Benski · Answer

@Westin Hudnall

The new information that you provided changes my view.  At the financing that you have, I wouldn't purchase this project because of its impact to cash flow.

Given the new information that you are at 4 conventional loans already it appears you should start (if you already haven't) to look for financing from portfolio lenders (local banks, credit unions) or private lenders.  This type of work will allow you to expand to 10 properties or more.

Westin Hudnall · Answer

Thank you for your responses so far:

Bradley - My plan is to hold onto my purchases until the loans are paid off and then for a while after that. The plan with the refi is to pay back the investor(which is myself as I would purchase with a line of credit)

There are no large capital expenditures (new paint, new water heater in March, new roof 2 years ago)

If I had the option of a 30 year note I would choose that but I already have 4 mortgages with traditional financing and even with decent income and strong credit banks will now lend me any further traditional finance deals.

The other bonus is the seller will rent the property from me while his house builds.

John Vietmeyer · Answer

that is exactly what I'm doing.  I bought for 114k invested 10k to fix  up and now rent for 1,325.  I've only been in the game for 6 months and it has been a great experience.  I close on my second one at 122k on Monday.  Did 20% down and 30 fixed on both.

I'd just make sure you are in a area that attracts desirable renters if you plan to manage it yourself.

Buy And Hold Investors : does this deal fit your investment strategy ? Would you do this deal?

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