To Buy or Not to Buy... That is the Question..

[Gabe Chase]

Hello, I am 19 years old and looking to close on my first deal! I am super excited, however this deal has seemed to go on forever! About 2 months since my initial message and offer. The house is $127,000, with about $3000 in closing costs and $4000 in wholesale fee. So I'm going to be paying $9000+ to close on this house. I have already paid about $1000 for everything to be inspected and looked over (Home inspection, Plumber to come out, HVAC to come out, and roofer). 

The house needs a new A/C unit, Furnace is old and water heater should be changed out for a tankless when I replace everything. This property will be used as a college rental, which is why the tankless water heater was recommended. 

The property is worth $130,000 appraised and will cost me $127,000 + closing costs +Inspection(s) Investment(s). It will rent for $1429 a month and yield about 35% CoC ROI after all expenses and management fees.

This double deed transfer has cause the whole process to slow down and has made me feel like I have wasted 2 months. Is it worth it to continue and go through with the purchase of this house? There is a house for $110,000 with 300 less square footage in better condition right down the road. Should I focus on buying a BRRRR and put my energy and money into finding a private lender or hard money lender, or should I go through with the purchase of this house?

Please leave me any advice or questions! I would love to hear everyone's thoughts and opinions on this. I thank you all. Happy Holidays and Stay Safe! 

[Will Fraser]

Hi @Gabe Chase, Good job pursuing a purchase and thinking about with an open hand.  That's a good path to take.

It sound to me like you are set to be upside down in this house.  The redeeming factor is that the rent ratio is comparably high to the value, but in reality you're experiencing the dirty underbelly of the wholesaling industry.  You'll end up paying $127+4k for a house that the market has demonstrated is only worth $130k and you will have done so with someone against you, not in your corner, rooting for their $4k fee regardless of the fact you're making an investment that the market testifies is backwards. 

Now this point aside, the Rent to Value ratio is the thing you have to make a decision on.  If it pencils out for you and you know FOR SURE you can do without the money you'll lock up in this property then that's one thing, but I know too many people who follow this path and then need to cash out of the property two years later only to find out that, oh wait, when you overpay for the house to begin with you end up bringing money to the sale not the other way around :(