2 single family homes, should I buy?

Question

Hello all! I’ve been looking for a property the past year. The last few have not panned out well but this time I found one that I truly like. There’s 2 homes, front is 2bed/1bath. Back 1 bed/bath. It’s been on the market since June and was listed at 588k. Last Friday, over the course of the past few months of reduction in price, 568, 548 respectively, it was listed at 499k. I looked at it yesterday with a contractor and he said it would take about 50-80k to rehab the place. I plan to live in the front unit but If I plan to rent it, it will rent for $1700, back house needs some update and would rent for $1300-1400. Seller will not do any repairs, looks like it would need roof to be done too so that’s extra 5k. what would be a good offer for this place? Would 460k be a good offer on this place? Planning to put 10% down and slowly rehab the front but definitely get the back ready for rental right away.

At 460k

Expenses would be 2,771 including mortgage, interest, PMI, taxes, trash, water, sewer, property manager, repairs, cap expense, vacancy rate while I live in the front house. Hoping to rent the back house for 1,400 which is the average based on rentometer.

Rehab and repairs- I’m going to stick to 60k.
downpayment: 46000

Closing cost: 9,200.

What do you guys think? It’s about 36 miles from Los Angeles. Last comparable I saw was sold for 580,000 on Oct 2019 but it was already all fixed up nothing to do. They listed it at 595 but sold at 580.

Would love any opionion

Jon Schwartz · Answer

Hey April!Not a bad LA deal.Expenses, including reserves, are $2771 and rental income on the back unit is $1400, so you out-of-pocket while you live there is $1371/month. Cheap living! With rent on both units being $3100, you could move out anytime and cashflow $300+ per month.If your comps are good, that means you'll be paying $60K to add $80K of value to the property. That's very good! It's not enough margin for a flipper, but it's positive equity that you're creating.If looks like your total investment is going to be around $115K. Your cash-on-cash if you were to rent this property from day 1 is a little over 3%. Honestly, that's not bad for LA.Are both units vacant now? Do you really like the neighborhood?I'm going to message you. I finished my househacker calculator, and I think you'll it.Best,Jon

Theresa Harris · Answer

Get advice from people who know your market. Each market is so different.

Eddie Brady · Answer

@April Causapin I personally don't like the numbers when I see them. Have you considered investing in cheaper markets/out of state? Message me and I could at least point you towards markets that have better price-to-rent ratios than greater LA.

Twana Rasoul · Answer

@April Causapin Good for you for trying to make it work locally as opposed to going OOS. If it works for you go for it and get the deal, maybe you can offer 10k more than what you intend of offering and have them cover your closing costs to keep more money in your pocket for rehab. Best of luck!

April Causapin · Answer

@Brian Gerlach thanks, Brian! I crunched the numbers and living in the back would definitely help me have more breathing room. And great philosophy on buying properties! @Colleen F. Thank you! It would be my first time going through renovating a place. Great advice!

Colleen F. · Answer

If you are living there it is a little different then if you are only buying as an investment. So when investors say you can get a better investment deal elsewhere consider you need to live somewhere and you should be comfortable where you live. Given that to me your numbers look ok. To see if this is a good deal consider your area specifically and the condition. However one thing to check out is if both properties are legal rentals. I think you are in California so maybe not an issue. Check your tax listing and see whats on there. Also add 20% to your contractors numbers. Maybe you won't need it but often the behind the walls rehab is more then expected.

Zachary Ray · Answer

The numbers seem extremely large for two units. I don't think the rents will be able to bail you out and make it worth your while.

Theresa Harris · Answer

You can look for people who are active on BP in your area (search for your town). Otherwise if you have a realtor you trust who know rentals, trust them along with your own information. I did research into the area where I am investing as I wasn't really familiar with it, but had family living nearby. Then run the numbers. Sometimes you have to take a bit of a leap of faith.

Brian G. · Answer

@April Causapin if you like the area the property is in go for it. Hard to envision a house hack for a $500k purchase price but I’m assuming if you are willing to live there the neighborhood is decent. My buying philosophy is to buy the most desirable assets I can afford which lowers turnover, draws the best tenants, protects cash-flow and yields good longterm appreciation. If the front house is move in ready you might consider renting that and living in the back house instead, depending on your priorities.

Darius Ogloza · Answer

An architectural shingle job up here would cost at least $15K.