My first REI, need advise?

Question

Hi yall, this is going to be my first buy.

Here is the scoop, ive been listening,reading , and joined the local reia for REI, and done so for a year now. Ive analysed more than 40 properties through the BP Calc, walked through 5 properties, and made 5 offers with no luck. As a newbie im tyring to find that "perfect investment house", im done with that and ive now been talking to a local wholesaler. There is this house he is selling, ive walked it multiple times also have ran the number at different prices, house is one of those owner finance deals for homestead buyers with no credit.

This house is attractive to me because of its owner finance, its solid, and it is house hacking applicable, and a fairly short commute to work and my university.

The bad is that it is in a near the bad side of town. Ive talked to the neighbors and checked the crime reports all pointing that the bad area is across the major freeway(a few blocks down). Also the house is not worth the asking price of 100k, ball park figure from local investor friends is about 50 to 60k.

I know the most important things is the numbers so here are the numbers:

asking: 102k price , 10 % int, 2k down, 868 mortgage, 30 yr note, 1541 taxes, >10k approx rehab, arv 80k (long term buy/hold investment)

appreciated 48% in the past 3 years close to downtown where major gentrification is occurring and increasing influx of people moving to san antonio. projections of 2 million in 10 -20 years(SA city meetings)

negotiated: 99k cashflow $50 a month

best case: 80k with cashflow 100 a month

my plan to negotiate will be to either win cost at close to 80k or win at terms with lower interest rate with lower note.

this will be a mixture of a "live in", "house hacking", "BRRRR"

the home is 4 bedroom one bath(horrible i know), we plan on me my wife living in the smallest room, rent out the room to a family member and a friend at 400 each.

that in itself should cover the mortgage, me and my wife currently live with my grandmother and plan on living at my gma's half the time. the wholesaler states we must live in the property i will talk to a friend who is a RE attorney to look over the paperwork for potential problems with my plan.

Refinance as soon as we live in for a year or two, to apply for a FHA loan if applicable or conventional loan with a better int% rate and with that in hopes to get us out of that home and fully rent it out every room.

Jose Tamez · Answer

@Rick PozosI will definitely fill out my profile, ive been just a forum lurker for sometime now. Thank You for your feedback and i will make sure i fill that out ASAP.I will not move foward with this purchase, with all this feedback my gut feeling is at ease that this is "NOT' the house for me. Me and my wife are currently and have been driving for dollars, and also me managing my restaurant I get leads potential and off market deals...the problem is the location is a hot expensive market of Tobin Hill. Ill continue to search and network, build more capital and build a more solid marketing strategy.

Michael Guzik · Answer

@Jose Tamez Great job on taking action and continuing to learn my friend! My 2 cents is this sounds like a bad deal my friend. You will be over paying like most people in this economy at the moment. I don't know what side of town this is on but cash flowing 50 a month is nothing and isn't something to get excited about. You are basing your strategy on appreciation my friend which is a very foolish thing. Just because it has appreciated that much recently does not mean it will continue to do so. Please keep a level head and focus on all the reasons you shouldn't do the deal. You should be thinking worst case scenario when evaluating deals like this. What if your family member and friend don't want to rent there? What if something breaks or needs fixing? What if the market crashes? Do you have the money to pay for the mortgage and/or possible repairs? I know I may sound harsh my friend but you really need to think about this stuff. I would hate to see you take down a deal like this with such slim numbers and be in a very tough spot in a year or two. Continue to learn and interact with other wholesalers and agent and see what else they have. I'm confident there are much better deals out there. good luck!

Reno Puente · Answer

Sometimes the best investment is the one you walk away from.

Jose Tamez · Answer

@Costin I.Thank You, As of now with all the feedback Ive received i will not move forward with this house.

Jose Tamez · Answer

@Grayson WesterThank you for the reply, i will send you a messege in a bit.The house zipcode is 78220, on MLK dr ,east side of San Antonio.

Rick Pozos · Answer

@Jose Tamez first thing you need to do is fill out your profile and post a pic. This way people will know a little about your background to be able to answer you honestly and at your level.Without knowing you or the area of the property, if you say it is worth 75ish, why would you even think about paying 80k. An investor is the one who is selling the property. You dont want to do that. You want to market to people so that they call you asking to help them with their situation. These people will give you a deal.Do some research on direct marketing and networking.

Costin I. · Answer

Don't.

Grayson Wester · Answer

@Jose Tamez what neighborhood is this in? I know San Antonio pretty well and can give you feedback that's more specific.It sounds like you've invested a lot of time in educating yourself and taking action. I'd need a little more info to analyze this deal, but I'd encourage you not to jump in without getting good comps for the ARV (free stuff online isn't the most accurate).At the least I can connect you with some more wholesalers in San Antonio so you've got more options to choose from.

Jose Tamez · Answer

@Lee RipmaWithout access to the MLS, we are basing our ARV values of the homes listed on realtor and zillow for comparable homes. the past homes have sold for range of 70 to 78. we estimate the ARVfor the home would be 80k. I will contact a buddy from my local REIA to possibly check for me on the MLS. Me and my wife have till Tuesday evening to speak to wholesaler, we are currently working like ox to do our research. Adding value the home had a converted garage into a room, we can add value by adding a washer and dryer possibly increasing the rent. the lot is 6600 we plan on building three or two small sheds for tenants to rent as a add on 25 to 40 dollars a month. The area is under gentrification, the school district are not that great but San Antonio is sure trying to improve that area, there is a community college in our area and the at and t center where the spurs play and other major events occur and also where our yearly famous festival "fiesta" is held.Zoning is R4, currently digging on what we can build or do at that property.Although we know that we shouldn't depend on appreciation, but we project it may keep appreciating more close to within the next 5-10 years. From the looks on the appraisal district the home is appreciating about 1500 a year, so if the market continues at this steady pace we could possibly see a increase in the homes value up to 15000 in ten years (perfect scenario). Although this seems great it will still be under the value of 80k that we hope for, but like i said we are new and were just gathering as much information as possible with the knowledge we have acquired. This is where the BRRRR strategy will come to play in helping us refi and yet again work on a different deal while still living with my grandmother.We currently live rent free! i forgot to mention...im a general manager for our family restaurant, the perks is i get to keep my room where ive lived all my life. As long as I maintain our family restaurant profitable and in the family.

Jose Tamez · Answer

@David FriedmanThank you, that is what were we are going back and forth me and my wife. The term "investment" that is exactly what we are saying at the current rate there is no play room for us and it will not be considered a investment. that is why we want to renegotiate either price or terms. but if we cant come to something close we are more than willing to walk away. We just need the peace and mind from this great community at BP. We are willing to wait for more deals, there are definitely a lot of deals out here in San Antonio. market is hot, a lot of out of state investors are snatching them up...