Does it make sense for a good deal to be on market 142 days?

Question

Hello everyone,

Let me start out by saying I have been stalking BP for a while, but am new member of the community. I plan on doing an introduction shortly, however I have a question that is bothering me. I am still in college, so obviously I have no experience, but that doesn't stop me from looking for deals/practice evaluating. Anyways I came across a property today that seems like it would be at the very least a decent deal. Its a short sale 80k, needs approx. 10k worth of work and would rent around 1200 based on comps. From the surface it seems it would CF around 600 a month lets even say 500 to be conservative. Sorry for the long post. Anyways my question in general or off this example would it make sense for a property to be listed on a commercial home listing website for half a year when it appears to be a pretty good deal? Or is there usually something underlying wrong with the house at that point that makes the deal bad? I just don't want to waste time contacting brokers to always find out there is something wrong. Once again sorry for the long post. Anyone brave enough to read all this and respond would be greatly appreciated. Obviously have a lot to learn, and already have due to BP.

Justin Whitfield · Answer

You'll never know if you don't take the time to investigate. That's a lot of what real estate investing is all about - digging deeper than everyone else. Maybe it's sat on the market for 142 days because everyone else is also thinking "I don't want to waste my time and then find out something's wrong". If you really think from your calculations a property could cash flow $500-600 a month, then it's hardly a waste of time to contact a broker to check out a property.

You don't have to contact a broker to do initial investigating to see if there's glaring issues with the property. Drive over there yourself and check out the neighborhood, the lot, the building, the roof, the exterior, see if any windows are busted/missing. Look through windows and try to get a glimpse inside if there's no pictures on the listing. If the property is listed and has a sign out front, no one will think anything about it if you're checking a property out.

On the other hand, maybe there IS something wrong with the property and that's why it's been on the market for 142 days. You'll never know unless you take some time and do some research and investigating though.

I bought a duplex (and I currently live in one side) after it was on the market for 154 days. It was shown many times and people were scared away by the smell (fixed by removing and replacing old carpet) and some other things (new roof, appliances, paint, etc.). Even after spending 15k on repairs and improvements my total debt on the property is only 40% of the ARV.

Jeff Morelock · Answer

As Blake Facente mentioned short sales take a long time. Some can take 6 - 9 months. Many agents will list them before contacting the banks, and there are several steps that must be completed after a short sale is listed.

Anthony Yannucci · Answer

I am sort of new as well, but my 2 cents would be to not pass it up but very skeptical.  Sometimes, someone tries to acquire the property and holds it up for months and for one reason or another the deal goes through and it is back on the market.  Or the person looking to purchase it did not want to do certain rehabbing that you feel you could do.  Again, I would do your due diligence, but you never know...it could be a diamond in the rough.  Doesn't hurt to research it, right?

Lance Wakefield · Answer

I would also recommend looking a little closer at the rental expenses. I personally feel you are assuming WAY too high of cashflow. If you simply use the 50% rule based on your $1200 a month of income that would give you NOI of  $600 and then you have debt service. If you did a zero down payment loan and had a 30 year note at 4% your monthly payment would be $430. That leaves you with $170 a month not 5-600.

Just a thought. Perhaps you have a different method of calculating cash flow.

Blake F. · Answer

Short answer - yes, there is something wrong or it wouldn't be sitting on the market for that long.

Short sales can take a long time. Sometimes the bank takes months to respond to an offer.

Or it needs a lot more than $10k worth of work.  Or it simply is not worth $80k.  Or it is in a terrible neighborhood and no one wants to take on the hassle of renting it.

Good luck!