My First Ever Offer Was Just Accepted, Look! What Do You Think?

Question

Hello BP Friends! My name is Jake, I have worked an 8AM-5PM, salaried job the last few years since graduating from college were I studied Economics and Political Science. I have recently caught the bug.... Over the last 5 or 6 months I have been studying and learning more about real estate basically every day, as has my brother. I found what I believe is a good opportunity in Olympia, Washington.

https://www.redfin.com/WA/Olympia/6707-Old-Highway...

I am really excited about this deal because this appears to be the best cash flowing property I have seen in Thurston County. Although I wanted my first property to be in Thurston County, I had been looking more in Grays Harbor County because the property prices are lower and we do not have a bunch of capital available yet. Once I saw this deal in West Olympia, I knew I wanted it, but my brother and I realized that we did not have the capital to put up 20%. Thus, we are bringing in our father, whom has some money and doesnt know what to do with it, so its a win win. My brother and I are putting up 10%, while my dad is putting up the other 10%.

Details:

1 parcel, 3.5 acres, 2- single family homes (both 2 bed/1bath), 1 duplex (1bed/studio)

Each house is on opposite ends of the duplex. This property also has a 5 car port, large storage space below the duplex units and a well house.

We offered what they were asking at 385K. This is with many contingencies based on inspection and financing.

I decided to offer what they were asking because the numbers seemed to work, all the units are rent ready, with 3 of 4 units getting recent updates, and I want to get that first deal (as long as it looks right). 2 of the 4 units are vacant right now, as they were a family split between the units and moved together. Gross Monthly Income was $3750 when fully occupied, and I believe with a bit more sweat equity and some paint, along with rising market rents, we could get $3900/month.

My offer was just accepted today, and now I am looking for referalls for good inspectors, as well as other pertinant real estate related professionals. Recommended title companies, handymen, GC's, real estate lawyers, accountants, etc. are all appreciated to add to my list.

Even if I do not need some of these services right away, I would like to build up a list of recommendations for when I need it. I appreciate everyones input. Let me know what you think of the deal! What should I ask the sellers for during my due dilligance? thanks everyone!!

https://www.redfin.com/WA/Olympia/6707-Old-Highway...

Jake DeAtley

Tyler Blackwell · Answer

@Jake DeAtley, you're right--this is the best deal that has been on the market in months. A few months ago, following the passing of the late Washington Landlord Association president, a lot of multis hit the market at a relative bargain (duplexes for $205-215k, 5plex for 400k), but since then prices have just gone up and inventory is pitiful. I love that this has 3 acres with it so close to town!!

In terms of value in this market, it's all there. You're hitting the 1% rule with a few fixes and that's getting harder to do in Olympia and Thurston County. I don't think we've hit the peak of our appreciation and rent increase trends quite yet.

Definitely good information from the other posters. If this is your first deal, budget for all the things your BP colleagues have mentioned, but be reasonable. Some people think you need 5% for CAPEX, others think 15%, so find a number you think is solid and go with it. At this point your vacancy can be 0%, but maybe in a couple years the market will stop sizzling. I think this deal pencils either way, but just keep in mind that these 4 units aren't all under 1 roof, and there are 3 buildings to maintain (plus the carport!)

In terms of interest rate, go with 5%. I just got two quotes for my last investment refi and they were between 4.875 and 5.125.

Best of luck with the deal!

Brandon Turner · Answer

Looks interesting, @Jake DeAtley! Definitely SEEMS to be a good deal for Thurston county. I didn't verify your numbers, but 18% coc in Oly is unreal. :) Maybe run the numbers through the Rental Property Calc here on BP to see how to pans out on there? Good luck dude!

Eric Hardt · Answer

@Jake DeAtley obviously you will know the area better than I will. The one thing I'll very much encourage is just making sure your numbers are on the high end rather than low.

Mortgage - someone already mentioned, but is that locked in or an estimate? Depending on area, credit, and experience, I think a half to three quarter higher than owner occupancy is pretty standard. If you are locked in at 4% on your first investment, great! Make sure you keep that relationship. Same question with quote or not regarding the insurance.

Vacancy - Is 5% reasonable? Based on what a few others have said, this seems to be a pretty nice area. Only real reason why I ask is because you say 2 of them are vacant now.

Repairs/capex - At 12% total, I'd estimate this is pretty low. If a bunch of maintenance was done recently, you might be ok initially. Just be prepared on this one.

Property management - assuming you are self-managing. Just be mindful of the cost and your goals in investing. If your goal is to continue

Jerry W. · Answer

Hey @Jake DeAtley, welcome to BP.  Real estate is local.  What that means is that where the property is will control the price.  If your area is very hot getting a property with income  better than 1% is a good deal.  In some places getting a 1% property is considered a bad deal.  You might use the member locator services and find members near your area who can look at it and the price and tell you if it is a good deal for the area.  If you can get it, good areas with lots of home owners, not renters is desired.  places with low crime and high appreciation are also good.  The properties look very nice from what I can see.  You might try to get a quick appraisal as well as other inspections, check with your bank the appraiser must meet their requirements or you will be paying for two of them.

Eric Hardt · Answer

You talk about this deal looking right. Why don't you share the numbers you calculated? I think people would be able to offer you much better insight that way.

I'm not familiar with the area and know parts of Washington are booming, but have a hard time seeing this property as a good deal, and potentially not even cash flowing.

Nate Burgher · Answer

@Jake DeAtley, what ended up happening with this property? I see it's been re-listed a few times since you posted, and it's currently pending. What did the inspection find?

Jake DeAtley · Answer

@Nolan Martineau, good call. That's what I am seeing from a few quotes I received today. I wasn't counting on the 25% down, so I might have to get a bit creative. Since this property is so unique, I am not hearing good news about getting a Fannie/Freddie loan for this due to the lack of comps.

Jake DeAtley · Answer

@Tyler Blackwell, Thanks for the reassurance! haha. And I appreciate the insight. I really like the fact that there is some property as well. I have been brainstorming ideas on what else I could do with the unused space... possibly develop storage units at some point, or secure, long-term parking/storage for RVs/boats, plus all of the storage space under the two upper level duplex units.

And I agree. I have not seen any deals on the market in Thurston county that even come close to the 1% rule, in a while. I wish I would have seen those duplexes in the low 200k range. That sounds interesting. I am pretty happy with this property though. Good call on the 5%, as I received a few quotes at that rate today. Unfortunately the downside to this property is that I cannot get a Fannie/Freddie loan because of the uniqueness of the property, and thus no comps. I was hoping to see a rate of 4.5% or better, but this property still makes sense at 5%.

Nolan M. · Answer

My guess is that you'll need 25% down and the interest rate will be closer to 5%. Hope it still works out, good luck!

Jake DeAtley · Answer

Thanks for taking a look @Brandon Turner. 18% is definitely on the optimistic side, with a 3.875% interest rate and on the lower end of vacancy/repairs/capx, however even when running these numbers on what I believe to be the higher end, with a 4.75% interest rate and pulling out $900 a month for future expenses/vacancies, we would still be looking at an 11.3% coc prior to raising any rents. I think the inspection is going to tell a lot about whether or not this will be a good deal. This is definitely the best deal (on paper) that I have seen in Thurston County, so I am eager to get this inspected to see if there is any major concerns that I am currently not aware of. I have 3 or 4 inspectors that I have been referred to, however @Brandon Turner, if you have any suggestions for inspectors, especially BP members, I would love to give my business to a fellow BP member.

Thanks again!

My First Ever Offer Was Just Accepted, Look! What Do You Think?

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