HELP! My Mom is buying house for $210k at $1200/mo Rent

Real Estate Deal Analysis & Advice

HELP! My Mom is buying house for $210k at $1200/mo Rent

Taylor Jennings

Indianapolis, IN · Member since 2013 · 354 posts · 90 votes

How do I convince her not to do this... and instead buy 2-4 houses with a turnkey company here locally?

The $210k house is in her neighborhood, has an elderly woman renting it, and doesn't need any repairs. My Mom says she wants to buy it because she doesn't have to do anything...

PHASE 1

Mom: There is an existing tenant and I don't have to do anything to manage it.

Me: What if the woman dies?

Mom: Then I can resell it.

Me: The house retails at $220k....

PHASE 2

Me: What if the market drops by 10%?

Mom: ....

PHASE 3

Me: This isn't a good deal... You are at 6.8% CAP rate.

Mom: I don't have to pay closing costs. I don't have to fix it up. I don't...(interrupted)

Me: You are paying $210k.......

PHASE 4

Mom: I don't want to have to do anything and I don't want to have to carry a gun to visit one of the houses you were talking about buying.

Me: You will be buying the houses turnkey and have a property manager who is currently managing 1,000+ houses in Indy... You won't ever have to look at the house.

That is the conversation in a nutshell.

How else do I convince her not to do this?

She says the $210k deal is less risky...

We are talking about my Mom's retirement money! I flat out begged her in the middle of a restaurant not to go through with the deal...

I'm speaking with my Turnkey people at 2:30pm today to get some options.

41 views

Most Popular Reply

Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes

12y

Good luck I wish you the best.

I don't even speak with my family about investing anymore, they aren't interested and its not worth my time.

Most importantly though you must listen, my parents also never wanted to risk anything at an older age. So the perceived security in this investment is probably giving her the warm and fuzzy's

See this reply in the discussion

23 Replies

Jump to latestLatest

Sort by

Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y
Taylor you didn't mention how much capital your mom is putting at risk??

Is she buying all cash??

If she has all cash she might look at an apartment complex or really from what you are describing (hands off) triple net leasing but you need a few hundred k to get going.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
0 Reply
Carlos Flores
Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
12y
Taylor,

The subject line says $1200/mo rent. Is that net or monthly rent? If it's the latter, it's not a 6.8 cap ... it's half that if you use the 50% rule.

You should point her to this site to get educated.
0 Reply
Tim G.
Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
12y
Good luck I wish you the best.

I don't even speak with my family about investing anymore, they aren't interested and its not worth my time.

Most importantly though you must listen, my parents also never wanted to risk anything at an older age. So the perceived security in this investment is probably giving her the warm and fuzzy's
2 Reply
Kevin Auyong
Marietta, GA · Member since 2013 · 202 posts · 118 votes
12y
what kind of return would she get with the turnkey properties? How good are they at keeping the properties occupied?

Obviously you are dealing with Mom's comfort zone because the house is in her neighborhood. You know the older we get, the more we like things to stay the same.
0 Reply
Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
12y
How about trying to find her another pretty house that's a real deal? I bet there are houses that are in better neighborhoods, where you could negotiate a better deal? Something that's not on either side of the extreme?
0 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Is your Mother buying with all cash, or will she have debt service? And how good is the neighborhood really? Great schools and easy to rent, or is it just a neighborhood she knows? Is she exaggerating the about safety of the neighborhoods where you think she should buy turnkey?

It's a terrible rental investment. But if the neighborhood is good and the house is in good condition, there are worse places she could park her money.

Instead of pushing her towards your idea of a good investment, you could urge her to get financial advice from a professional before buying. Or at least talk to her CP.
0 Reply
Jeff Owens
Salem, VA · Member since 2013 · 26 posts · 31 votes
12y
You wanted advice on how to talk her out of it. I think trying to talk her out of it is not the best strategy. I think the best approach would be to show her why it's a bad idea, and let her come to the choice not to do it on her own. Run all the numbers, sit her down and explain them all to her.

She may think she has no expenses because the house is in good shape. Explain to her that she will be responsible for taxes and insurance, show her what that costs. Find out how old things like the roof, heating and cooling, water heater, and appliances are. Show her what they cost to replace, and the average lifetime on those things, show her how to budget and set away money from rent to replace them.

You mentioned she only plans to own as long as the current tenant lives there and if the elderly tenant passes away she plans to sell it. (A very unusual property exit strategy) Show her what she can expect to pay agents when she sells.
2 Reply
Taylor Jennings
OP
Indianapolis, IN · Member since 2013 · 354 posts · 90 votes
12y
@Joel Owens

@Account Closed undefined

My Mom is paying cash for the purchase. The neighborhood is really nice. Great schools and the house already has a tenant in it. The houses are selling within a week of being listed in the neighborhood.

She isn't exaggerating about the neighborhoods I'm in because it's how she perceives them. They are blue collar neighborhoods here in indy.

She is dating a man that owns 22 rentals and manages even more... She never asked him for his opinion about the purchase >=/ I told her to ask.

@Carlos Flores OMG. Even with 40% rule being applied it's less than 5%.... Yes it's $1200/mo GROSS. Apparently I forgot to use NOI...

@Tim G. I am working on making this house purchase the opposite of warm and fuzzy!!!

@Kevin Auyong The Turnkey properties she will be at a 10%+ CAP. The company managing the properties is very good at what they do. I would apply 45% to the total rent to estimate expenses through them including the management cost.

@Michaela G. Pretty house that is a real deal is what I'm working on... There are plenty of deals in our area and THIS IS NOT ONE! I spoke with my turnkey connection and told them to find her the cutest house they could ha
0 Reply
Jeff Owens
Salem, VA · Member since 2013 · 26 posts · 31 votes
12y
At less than 5% she would be better off buying an annuity with her retirement cash if she wants risk free guranteed income with no hassles.
0 Reply
Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y
Taylor she might want to look at triple net as it is hands off completely.

Yes you might get her more yield with her money with a house of your choice. The problem is older people tend to want to keep what they have and not put it at risk but outpace inflation.

Where you see opportunity they see a headache. It's not worth the extra 3 percent a year to them.

I deal with older clients and they want EMOTIONAL piece of mind that their estate will help their children and grandchildren to a better life after they have passed. The thought of security makes them emotionally happy.

Offer your mom your opinion but it's her money and choice.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
0 Reply
David Beard
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
12y
Well, at least that meager return would be essentially tax free with the depreciation writeoff. In such a hot area, I'd think she could get $1,400 - 1,500?

Also, Taylor, since you're local, why would you send her to a TK company and pay their $10-20k profit margin on the deal? There are also lots of PM companies that will find good rental properties and just take the seller-paid commission as compensation (and they have great incentive to do a great job to obtain and keep your business over the long haul).
0 Reply
Michaela G.
Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
12y
Your mother is obviously making an emotional decision, so any appeal with numbers is not going to do any good.

So, you can change her mind only by finder her a deal that engages her emotions more than the one she's thinking of now. Something in a close neighborhood, that's cheaper and prettier.

Price and ROI are not going to sway her
0 Reply
Marcia Maynard
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
12y
There may be no need to sway her to your way of thinking. I have bought houses such as the one she is considering and have faired very well. For me, having my rental property close by, in the neighborhoods familiar to me is important. I let a house rent for a little below the market rate for a retired single woman on fixed income who takes good care of my property and loves her home. Couldn't be happier. Some people live a long time. No turnover. Nice.

I can relate to your mother's view. It may be her intuition that is guiding her and not emotions. You may share your thoughts with her, but be respectful and consider she may not be making a bad decision. She of course will need to have a management plan for rent collection, periodic inspections, maintenance needs and to address any issues that may come up. Maybe you or her gentleman friend could help her with that.
1 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by Marcia Maynard:
There may be no need to sway her to your way of thinking. I have bought houses such as the one she is considering and have faired very well. For me, having my rental property close by, in the neighborhoods familiar to me is important. I let a house rent for a little below the market rate for a retired single woman on fixed income who takes good care of my property and loves her home. Couldn't be happier. Some people live a long time. No turnover. Nice.

I can relate to your mother's view. It may be her intuition that is guiding her and not emotions. You may share your thoughts with her, but be respectful and consider she may not be making a bad decision. She of course will need to have a management plan for rent collection, periodic inspections, maintenance needs and to address any issues that may come up. Maybe you or her gentleman friend could help her with that.

I'm glad someone posted this view. I live in a CA city where people buy $600K houses that rent for $2400/mo. They know it will always be rented, they know their money is parked in an appreciating asset. They know every square inch of this city is precious and are happy to own here. Not an investment I want to make but it works well for a surprising number of people.
0 Reply
Aaron Junck
Real Estate Investor · Sioux Falls, SD · Member since 2013 · 415 posts · 84 votes
12y
If she is concerned and doesn't want to carry a gun to check out the property, why not have her look into note investing? Just an alternative idea.
0 Reply
Sam Leon
Investor · Fort Lauderdale, FL · Member since 2012 · 1k+ posts · 465 votes
12y
sounds like her entire strategy hinges on the current tenant staying.

Is the tenant on a long term lease?

What if she moves tomorrow? A family necessity, a job transfer, a romantic involvement, or just having an enlightenment and wanted to walk the earth?
0 Reply
Taylor Jennings
OP
Indianapolis, IN · Member since 2013 · 354 posts · 90 votes
12y
Update: I pulled the CMA and the house should be priced around $183k. There have been (9) houses to sell over the last 18/mo and the most expensive house 4bd/2.5ba/2453sq sold for $209k. Her house is 3bd/2ba/1809sqft. Average sold price was $182k.

The most expensive house sold at $117/sqft while the average was at $101/sqft.

So she is losing ~$30k as soon as she buys the house.... am I wrong?

@Jeff Owens Agreed.

@Joel Owens I've read a little bit about NNN after the podcast last week, but I'm not too familiar with it...

"I deal with older clients and they want EMOTIONAL piece of mind that their estate will help their children and grandchildren to a better life after they have passed."

... I'm Her child! She knows I won't have peace of mind with her decision on this. She is literally burning her money up.

and I agree with you,

@K. Marie Poe undefined

and @Marcia Maynard , but what @Michaela Graham says is true... This is an emotional purchase.

The person selling is her next door neighbor. She started telling me a story about this old lady and I cut her off after 5 seconds of this story and said, "Mom, I already know this is going to be bad deal because it's an emotional deal." before knowing the PP or Rent.

@David Beard My Mother has got to the point where she is itching to spend the money. She was suppose to wait for me to come across a wholesale property, but jumped right into this before consulting me. It had only been three weeks.

Turnkey would produce better returns than this house and I have a good relationship with a local company.

She could potentially get more, but this old lady has been there for awhile and is content paying $1200. My mom won't raise rent while living next door.

@Aaron Junck That is a great idea, but I'm not sure how long it would take to set that in motion. I'm not familiar with note buying so I wouldn't be able to guide her.

@Sam Leon You made me think a bit about this today... I don't know if there is a long term lease in place... I doubt it. What would stop the lady from moving out especially when they got $30k more than the list price should have been.

Haha enlightened and wanted to walk the earth. At her age that might be called dementia. KIDDING You're right though, there are a million reasons that could cause her to leave and that would mean my Mom would need to fix the place back up to rent it again at that $1200/mo price.

Thanks all for your responses!

@Jeff Owens

@Joel Owens

@Account Closed undefined

@Marcia Maynard

@Michaela G.

@David Beard

Hey BTW, BiggerPockets... Fix these @Joshua D. @Brandon Turner

symbols! It's taken me 30m to get them to work and they causing havoc on Chrome and IE.

Please =) Thanks
0 Reply
Pete T.
Real estate investor · Las Vegas · Member since 2013 · 798 posts · 171 votes
12y
You can only share your opinion and point of view. Ultimately, it is her decision. I wouldnt get so worried over it and instead see how you can help her w/ the decision she is making if it is clear she doesnt want to follow your lead.
0 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by Taylor Jennings:
Update: I pulled the CMA and the house should be priced around $183k. There have been (9) houses to sell over the last 18/mo and the most expensive house 4bd/2.5ba/2453sq sold for $209k. Her house is 3bd/2ba/1809sqft. Average sold price was $182k.

The most expensive house sold at $117/sqft while the average was at $101/sqft.

So she is losing ~$30k as soon as she buys the house.... am I wrong?

nks

Your comp method leaves a little to be desired. Get an agent to help with comps. Ask your mother to get an appraisal.

Is the house listed, or is your Mom working directly with the owner? If the comps and/or appraisal really make the property worth only $180K, maybe she can buy it for that. I suggest making yourself useful. If she is set on that house or one in the neighborhood, help her get the best deal.
1 Reply
Taylor Jennings
OP
Indianapolis, IN · Member since 2013 · 354 posts · 90 votes
12y
@Account Closed undefined I'm not sure what you mean... Here is the CMA, the previous house Listing, and the TAX records > http://bit.ly/1awBEQd

I kept one house which is way over the 120% of the houses sqft, but I thought it was a good example of a house that still sold for less than hers.

I agree with you on going back and negotiating a legitimate price if it comes down to it and I can't change her mind.
0 Reply
Shari Posey
Residential Real Estate Agent · Long Beach, CA · Member since 2008 · 432 posts · 63 votes
12y
Some of those comps are very old--May and July. I don't know your market but our market has gone up quite a bit since then.

If she has been looking for a while, did you or she see the interiors of these other homes? If so, then hopefully she's comparing and evaluating them more than you realize. There is one sold for $209k that was about the same size and it sold for cash so maybe she's not that far off.

I think you are beating a dead horse trying to get her to buy in a different city in a lower-income area. It's just too far out of her comfort zone but I don't blame her.
0 Reply
Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by Shari Posey:
Some of those comps are very old--May and July. I don't know your market but our market has gone up quite a bit since then.

If she has been looking for a while, did you or she see the interiors of these other homes? If so, then hopefully she's comparing and evaluating them more than you realize. There is one sold for $209k that was about the same size and it sold for cash so maybe she's not that far off.

I think you are beating a dead horse trying to get her to buy in a different city in a lower-income area. It's just too far out of her comfort zone but I don't blame her.

Do you think it's our age speaking? I can't imagine trying (or bothering) to talk my Mother out of anything. Especially when it's her money.

I know those kinds of numbers on an SFH rental sound horrible to investors. But I see so many "invesments" like that by people happy to get their money placed, I'm used to it by now. I sold a 3/2 rehab earlier this year to investor buyers for $160K. It will rent for $1200-1300, but has an HOA of $100/mo and relatively high taxes due to special assessments. They put a lot of cash in (50%) and were just happy to get a property in a good area that rents easily. Let's remember that people who bought stuff like that in 2000 laughed all the way to the bank in 2006.
0 Reply
Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
12y
Originally posted by Taylor Jennings:

My Mother has got to the point where she is itching to spend the money.

Did you ask her why she has such a burning desire to invest this money right now? Have her explain it to you.
Podcast Guest on Show #29
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.

Log In Join for Free