Trying to buy the neighbor's house

[Carl C.]

My partner and I have been on the lookout for our next potential deal. We have one college rental and are looking for the next. A few months ago our next door neighbors listed their house for sale for $210,000 which would really be the very upper end of similar sales in the neighborhood. The owner has been in the house for 70 years (he was born there!) and is meticulous about maintenance. The house needs nothing. so we talked a while back and said we were interested. They have no mortgage and are looking to get into a newer house with no stairs and less maintenance ( and out of the now-college neighborhood). We made an offer of $180,000 understanding that they need time to find a new house and they are not emotionally ready to let go. We talk every now and then with them and so far no one else has made an offer on the house. They didn't reject our offer and they didn't accept it yet. We haven't been pushing because slower has been better for us so far. I know I can get $2600 for rent for the house with estimated monthly cashflow of around $1200. There are a few other houses in the neighborhood that are for sale that are priced about 50K lower with unknown repair needs. One in particular I know I could get similar rent with about $200 more monthly cashflow. Having read a lot on biggerpockets recently I can't help but think that the house for $130,000 may make more financial sense (depending on repair needs) even if the house next door is more convenient. I'm going to set up an appointment to see the $130 house as soon as I can (I have a full time job so it ain't easy) But I'm curious what you all think about getting a house near your current investments. I'm thinking economy of scale for snow removal and lawn mowing. But is that enough to make it worth it? Probably not huh? 

[Account Closed]

Carl Carlson buying directly next to your current investment is nice but it sounds like the house down the way for 130k could be the better deal. You'll have less into it to start and also a better margin and it is still close by.

[Steve L.]

@Carl C. there is as much negative as positive. One of the big benefits about SFH compared to apartments is if your tenants piss the neighbors off it's pretty hard for them to complain to you.

The next door house seems like a deal I'd try Seller financing with good terms that will make their price work.  But way too many people pay too much of a premium for Seller financing.

[Robert Crawford]

Why are you trying to put you money into a Single Family Home investment? 

It's hard to gauge your market from the information given but could you purchase a multi-unit building for the same amount?

[Carl C.]

@Robert Crawford Great question, I'd love to get a multi-family but they simply don't exist in the neighborhood where the students will rent. So our only option is SFH for what we are trying to accomplish now.

@Steve L.  I like the idea for seller financing. I'm going to bring that up as an option with them, thanks!

@Account Closed  It's funny, as I was typing the original post up I realized that the $130 house makes more sense financially as long as it doesn't need major renovations. In my head it seemed less clear. Thanks for the help!

[Jesse T.]

Are you in a position to offer all cash?  An all cash offer and rent-back would might interest them even if the sale price isn't what they were hoping for.  Is the house still listed?  Would they owe a commission if they take your offer for 180K?

If they stay long enough and you get the price low enough, you may even be able to get most of the cash back via a re-finance.

Also with a 70+ year old house, I would want an inspection even if cosmetically it looks great.

[Robert McAleer]

Any update on what happened with this deal?

Im looking to structure an offer on a elderly neighbors house that desires to live in it after and I'll be able to fix up and make an apartment to rent from the 2 car garage for my value add. 

[Carl C.]

@Robert McAleer Yes. I do have an update. Much has changed in 5 years. Much has stayed the same. We ended up buying th house from our neighbors for 182,000. It was a nightmare of a closing. Tears being shed by the seller’s wife, their attorney kicking us out of his office saying all sorts of nasty things about us, etc. The house had asbestos wrapped around the pipes in the basement. We had to have that abated before the bank would let us close. The former owners ended up staying an extra week or two after we closed then the house sat vacant for seven months because we closed at the wrong time in the student calendar. 

We ended up renting the house to the sister of one of our other tenants along with her friends. We were getting 2700 per month in rent, cash flowing around 1200. It’s been great having two houses right next to each other. Mow one, mow them both. The convenience has been great. This past year we found we had to reduce the rent a little to find tenants. A large developer built a big student housing apartment building between us and the school and took about 200 houses off the market. It’s been a disaster for many landlords. We do still have tenants but we had to shift to renting individual rooms rather than to one group of friends. This year will be the test to see if we should continue with this property or try to sell it. The market is a bit flooded right now with landlords trying to get out. If we can ride this out, I think we might be alright. 

[Frank Taliercio]

hey @Carl C.what Student housing market are you in?

[Noah Mccurley]

@Carl Carlson

I don't really see the benefit of having a property directly next door to another of your properties if there is a better deal just down the road. The 130k house appears to be a better investment.