I've got a deal. Now what?

[Benjamin Verrill]

Hi everyone!

I'm looking for some advice if anyone would be so kind as to reply. I'm new to investing in real estate. I've been reading every book I can get my hands on, but I still have a long way to go to understand the ins and outs of creative financing, flipping houses, buy and holds, etc. Which brings me to my point.

I have an opportunity to purchase a 3 br/1bath single family home in Saugus, MA for somewhat of a discount. The house was appraised at $410k an the seller would be willing to let the house go for $360k. The owner has a mortgage of $150k still on the property. The house does need some work, how much I'm not sure, but the roof is in decent shape, the kitchen is brand new, and there's quite a bit of new flooring. I don't have the funds to put 20% down, and my wife and I don't particularly want to live in it ourselves. There are other similar sized houses renting out at $3k on the same street.

So my question is, what would you do in my place? I really want to get into buy and hold investing but lack the funds. I know there's probably some creative financing magic that could be worked, but being new, I'd hate to jump into something that would screw me and my family over. 

Thanks for reading!

[Dan H.]

All the other posts act like finding properties $50K below an appraisal is easy.  In my market it is not.  In addition you do not indicate why the appraisal was performed but in our area refinance appraisals are conservative.  Also in my area an appraisal from a year ago would not reflect the 10% appreciation in the last year.

So $50K below market might mean $40K of equity above costs after adding purchasing costs.  In my area $40K of instant equity would be solid but it does not provide the complete picture.

I would calculate expected cash flow using conservative numbers. Make sure you include PITI, vacancy, cap expense, maintenance. Consider including PM costs.

Then do a comparison of a recently sold duplex in the same area (and ideally close to the same price but you can account for price difference at the end if you need to) doing the same cash flow estimate.  The reason to use a duplex is duplexes are typically purchased by investors.  Investors hopefully are somewhat smart in their purchase and an investor considered it a good purchase; one they expect to make money on.

If the cash flow is about the same or better than the duplex then you are likely near the top of your area on cash flow.

Note that if you have $40K instant equity but the duplex cash flows a few hundred more each month then the duplex with no instant equity will be the better long-term buy n hold.

If the purchase shows to be a good investment they you need to figure out the way to finance it.  Can your father-in-law finance it requiring less than 20% down?  Maybe you can take on a more experienced partner?  Maybe you can borrow from your 401K?  Only you know what options are available but if it is a good investment you want to find a way to make the financing work.

Good luck