How should I go about with this potential property?

Question

Hello BP!

I've run into a brick wall with what I should go about doing with a potential property that I've spoken to a homeowner about.  I'll list the information below:

Property Title: Washington 3Bd/2Ba

Condition of Property: Good

Repairs Needed: Gutter on the back of roof (have not checked out property yet, but will right after I post this)

Repair Price: undetermined

Asking Price: Owner has no idea, just wanted to see what is offered

Property Price: $200,000.00 (Zillow estimate)

Monthly Rental income: $1100.00

Some ideas that I have come up with:

Wholesale Deal:

$200,000.00 (0.70)

$140,000.00 - repairs - wholesale fee

or Seller Finance deal:

$200,000.00 (0.95)

$190,000.00 - repairs - (fees, I'm not sure what I should include)

Down Payment: $5,000 - $10,000.00

Interest: 5% - 6% (Pay owner: interest only for one year until I find an end buyer)

If I do seller financing with 5% interest, interest only payments, and $7,000.00 down, the payment per month would be $804.17. Then the assumption is I make around $295.83 per month (not including expenses)

If I sell the property for $200,000.00, I could potentially make $10,000.00?

I know I've missed a lot of numbers (please include them in your post if you comment, thanks in advance!)

Can you guys help me structure this in some way? I'm not even sure if the numbers are good.

Thanks in advance!

Kyle Parks · Answer

@Denny Lefirstly, don't go off anything on Zillow. You need to do your own actual comps. If you are not an agent and don't have one yet to run the comps for you then check out the pricing feature on Redfin. That will give you a much more accurate idea of what the market will bear. It all comes down to what the seller is thinking and willing to take. I would have advised you to qualify the seller to see how realistic they are in selling the home for a price that works for your business model. If you are comping it at $200k and they are saying it is worth $300k then you know that they are life suckers and not worth your time. If you can lock up the place in the wholesale model then you will have a lot of options as to how to proceed but the trick is getting it under contract first. Be sure to be realistic and not optimistic when estimating rehab. You could lock up the place for what you think is a reasonable price but then a seasoned investor comes along to buy it from you and you find out that there is $20k more work needed than you had anticipated. If you haven't done so already I would read Jay Scott's book on estimating rehab costs. If you need a good agent let me know and I can get you in touch with someone from our Portland office. We have a long list of investors that would be happy to buy  your deals. Good Luck!!!

Alex Chin · Answer

On the estimation of rental income, you are missing a fairly long list of stuff. Just off the top of my head, you'll need to account for:

Insurance Expense - I have no idea what insurance costs in Vancouver, WA, but I would guess in the $50-$100/month range. You may or may not need flood insurance, that can add some serious monthly costs.

Taxes - You'll pay between 1%-2% annually to the government, account for that!

Vacancy - It is highly optimistic to assume your property will never be vacant. I would suggest assuming at least 5%, although rates will vary from year to year. Keep in mind that if you are vacant for 1 month out of the year, you're looking at an 8.33% vacancy rate.

Maintenance - potentially a big kicker. Upkeep on the property can range from almost zero to MASSIVE. What happens if the tenant discovers plumbing issues? Knob and tube wiring? Pests? Wood rot?

Capital Expenditure - You should keep in mind that if a major appliance or component of the house fails while you are holding it with a tenant in there, it is on you to address the issue. A refrigerator going dead could set you back a couple hundred bucks and wipe out your profit for that month. A boiler could kill your cash flow for even longer than that.

Turnover - even if you manage to have a tenant move in without missing a beat on rental payments, you will still need to spend a decent chunk of change to repair the wear-and-tear that the previous tenant leaves behind. As any SFR owner will tell you, those costs can quickly eat through the security deposit and then some.

There are a lot more things you'll need to account for, but off the top of my head, the above expenses are a starting point.

Denny Le · Answer

Thanks for the replies! @Say Teoh @Alex Chin @Derrick Aragon @Austin Youmans

@Say Teoh Thanks for the advice, I will search through the county and check for liens  on the property. Once I have a property under contract, I will do my due diligence and remember to search for liens.

@Austin Youmans  I was able to contact the seller and give him a price that I am interested in buying the house for, which is $179,000.00, not including repairs.  I'm going to call him back this Saturday to see if he's interested.

Austin Youmans · Answer

Hey @Denny Le, what else have you found out about the property?

Just curious, how did you come across this lead?

since you want to turn the property around quickly your best bet is probably to assign a contract and not really buy it but who are you trying to sell it to. Would this be a house to flip or is it in good condition for the area?

Derrick Aragon · Answer

If your debit is 200k you will loose money each month with only $1,100 of rent.

Alex Chin · Answer

Denny - Sorry, I am the wrong person to talk about quick re-lists and flips with. I am strictly a long-long-term buy and hold investor.

Say Teoh · Answer

Hi Denny:

I think it is also worthwhile to find out what liens are on the properties, you can check with the owner on his mortgage, home equity loan, HELOC etc. Can also check with the county. If he owns more than what you are offering, you will have an issue with the liens holders.

Thanks

Say

Denny Le · Answer

@Alex Chin Thanks for the response Alex! I was hoping to structure this deal in a way where I would sell the property as soon as possible. Thanks for the expenses that are related, and they will be related to short term holding also, but I hope to get this back on the market within a month or two.  Do you have any ideas how I could structure this deal to make a profit and list it back on the market as soon as possible?

Denny Le · Answer

Thanks for the responses! @Kris Haskinsand @Kyle Parks

@Kris HaskinsThe location seems very good, there's a WinCo Foods, 24 hour fitness, and the mall is about 5 minutes away.

@Kyle ParksI was able to get in contact with an agent, and she said the comp for this property is $220,000.00 to $225,000.00.  I can only guess right now, but they have viewed zillow and are guessing the property will go for approximately $200,000.00.  In what ways would you structure the offers to make the most sense?

Kris Haskins · Answer

sounds very interesting. Please tell us a little bit about the location? How is it associated regarding shopping and the mall or hot areas?

How should I go about with this potential property?

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