Blind purchase of a duplex

[Tom Server]

Would you ever put an offer on a property with out looking at it if it cashed flowed $1400 a months ? 

Here is the situation, the property would cash flow about 1400 a month.. tenants are not letting anyone view the property. I was thinking of putting in an offer since it cash flows,(low offer) and during attorney review allow my self an out with any bad findings of the home inspection or the tenants records of payments not caught up ?  I know I'm taking a gamble of with ordering a home inspection and then tenants not opening doors.. but i feel tenants are probably annoyed with different people coming to see their homes.. but if planning a few weeks notice to let them know of a home owner inspection.. they might cooperate ?  Thoughts?

[Bill B.]

Try posting the numbers of any deal today that cash flows $1,400/mo. People are dying looking for $1/mo positive cash flow. (A $250k property with 20% down with zero insurance or property taxes where each side rented for $1,400 probably wouldn’t cash flow $1,400)

1) ask a local PM how much they think they could rent the property for . (To make sure the rent isn’t being inflated)

2) there’s no problem having “outs”. Simply verify the leases and the deposits. You get the inspection, the law will have a notice period but beyond that they have to allow inspections. 

Personally, I’ve purchased $500k properties without seeing the inside until the day of closing. That’s not the downside. It SHOULD keep the competition away and give you a better price. 

[Tom Server]

Quote from @Bill B.:

Try posting the numbers of any deal today that cash flows $1,400/mo. People are dying looking for $1/mo positive cash flow. (A $250k property with 20% down with zero insurance or property taxes where each side rented for $1,400 probably wouldn’t cash flow $1,400)

1) ask a local PM how much they think they could rent the property for . (To make sure the rent isn’t being inflated)

2) there’s no problem having “outs”. Simply verify the leases and the deposits. You get the inspection, the law will have a notice period but beyond that they have to allow inspections. 

Personally, I’ve purchased $500k properties without seeing the inside until the day of closing. That’s not the downside. It SHOULD keep the competition away and give you a better price. 

property going for
$225,000
rent $1350
rent $1500
taxes $3620
ins $1500

[Bill B.]

20% down is $180k at 7% is $1,200, $300 for taxes, $120 for insurance. Leaves $1200/mo cash flow, sounds like a good deal. Even if it needs $20k in work. 

You don’t have your location in your profile so I don’t know if the market is dying or growing. Check with a local PM and ask them how much rent they would charge to make sure the rent numbers are real. Make sure you get copies of leases and security deposits. Heck, Nov win to one side and put even less down. 

Good luck. 

[Alecia Loveless]

@Tom Server Be sure to figure in your repairs and maintenance, Vacancy, and CapEx figures monthly when you are making your calculations as there are more expenses than just the mortgage and insurance. Depending on the age of the building and if you know the age of any of the systems you can simply use a figure of 5-7% of the monthly rents for each of those 3 figures to help set aside enough money for future expenses and upgrades.

[Peter Vekselman]

you are thinking the right stuff.  key is dont overthink it.  make the offer.  give yourself inspection contingency. and then let the chips as they may.  the deal will actually reveal itself to you as you go through the fue diligence process.

go for it!

[Nicholas L.]

I don't believe it cash flows net $1400 a month.

And how do you know what condition it's in, whether the tenants are current, whether they're on leases?

And how much experience do you have?

Not enough info to know what to do.

[Zach Edelman]

Plenty of other fish in the sea. 

[Andrew Syrios]

In some situations, I might put a blind offer on a property but I would put in contingencies that would allow me to walk if it's not what I expect and never close without having viewed it.

[Bill B.]

See what I mean about reduced competition? At least two posters said they wouldn’t even look at the deal. That’s what makes these a win. You eliminate anyone who wants a reason not to put in an offer. If the property was $30k more and cash flowed only a $1,000 instead of $1,200 suddenly they be interested if they could see the inside. You’re being paid to be an investor. Nobody expects you to close without seeing the inside and making an offer costs nothing. 

[Tom Server]

Quote from @Bill B.:

See what I mean about reduced competition? At least two posters said they wouldn’t even look at the deal. That’s what makes these a win. You eliminate anyone who wants a reason not to put in an offer. If the property was $30k more and cash flowed only a $1,000 instead of $1,200 suddenly they be interested if they could see the inside. You’re being paid to be an investor. Nobody expects you to close without seeing the inside and making an offer costs nothing

Bill thank you for the encouragement! 

[Tom Server]

Quote from @Andrew Syrios:

In some situations, I might put a blind offer on a property but I would put in contingencies that would allow me to walk if it's not what I expect and never close without having viewed it.

 of course! I was born at night , but not last night !!

[Tom Server]

Quote from @Nicholas L.:

I don't believe it cash flows net $1400 a month.

And how do you know what condition it's in, whether the tenants are current, whether they're on leases?

And how much experience do you have?

Not enough info to know what to do.

@Nicholas L.look at @Bill B. comment in here!!

[Dan H.]

Quote from @Alecia Loveless:

@Tom Server Be sure to figure in your repairs and maintenance, Vacancy, and CapEx figures monthly when you are making your calculations as there are more expenses than just the mortgage and insurance. Depending on the age of the building and if you know the age of any of the systems you can simply use a figure of 5-7% of the monthly rents for each of those 3 figures to help set aside enough money for future expenses and upgrades.

 I can tell you have never populated a cap ex worksheet.  2 units rent for $2850 has no chance to have cap ex at 7%.  $200/month will not cover the cap ex on even one the 2 units. This implies even 15% is not enough for the cap ex for this property.

At large unit count properties such as large apartment complexes with maintenance staff they have much lower cap ex than lower count units. Do not apply NAR apartment numbers to small unit count properties.

Maintenance and cap ex should not be based on a percentage point of rent.  Here is why:

Same city, similar yard 2 properties: 3/2/2 in class d area rents $1k/month,  3/2/2 in class A area rents for $5k/month.  Which do you think will have the maintenance/lower cap ex.  My guess is virtually always the class an area property will have the lower maintenance/cap ex.

Same city 2 properties:  one is 4/3/3, 3000’ 20 miles inland and rents for $4k/month.   The other is 2/1/1, 600’ beach front and rents for $7k/month.  Which will have the lower maintenance/cap ex?. My guess is the beach front with only 1 bathroom and much smaller footage (less roofs, walls, electrical, plumbing, flooring, etc) is going to have the lower maintenance/cap ex.  

[Dan H.]

I have placed blind offers multiple times with contingencies.  It is common practice for small MF in my market that the showing does not occur until it is under contract.  

If the inspection shows the property to be in worse condition than you expected, you can re-negotiate or walk away.  This is why a rockstar inspector is so valuable.  I typically get 4 digit price reductions because my inspector finds issues that the seller is often unaware of.  Once issues are communicated to seller in my market they are obligated to disclose them.  Sellers are also reluctant to start over.  My inspector has found an over $30k foundation issue that the seller was unaware of.  The seller got their own estimate of repair and found my estimate to be accurate.  My inspector is on my forever team (as is my local lender).

It is easier for me to walk away. There are many properties on the market. If a property does not meet my buy criteria, NEXT! It is part of the game.  

My issue is your cash flow number is not achievable. My underwriting would have this negative at 75% LTV. PITI, PM, vacancy, maintenance/cap ex, misc.

make offer at number that works for you eight unseen but with inspection contingencies.  Then have rockstar inspector.  

Good luck

[Gustavo Delgado]

These current tenant sound like a pain. You sure you want to take them on? I would make the offer to seller but the current lease needs to end. Either wait it out or hopefully they are on month to month

[Nicholas L.]

@Tom Server

note that my response said "not enough info."  I can know for certain though that it won't cash flow $1400 a month.  I am assuming there is deferred maintenance and that it will need major capex, which @Bill B. alluded to as well, saying 'even if it needs 20K in work.'  here is a more realistic tally of expenses.

Property Mgmt	$285
Taxes	$302
Insurance	$125
Mortgage	$1,260
Vacancy 2 weeks	$119
Monthly repairs	$200
Capex 10%	$285
Total	$2,575

We're all guessing which, again, is why I said 'not enough info.'  Are there any shared utilities?  What about trash, landscaping, snow removal?  Deferred maintenance items?

[Dan H.]

Quote from @Nicholas L.:

@Tom Server

note that my response said "not enough info."  I can know for certain though that it won't cash flow $1400 a month.  I am assuming there is deferred maintenance and that it will need major capex, which @Bill B. alluded to as well, saying 'even if it needs 20K in work.'  here is a more realistic tally of expenses.

Property Mgmt	$285
Taxes	$302
Insurance	$125
Mortgage	$1,260
Vacancy 2 weeks	$119
Monthly repairs	$200
Capex 10%	$285
Total	$2,575

We're all guessing which, again, is why I said 'not enough info.'  Are there any shared utilities?  What about trash, landscaping, snow removal?  Deferred maintenance items?

 That maintenance/cap ex is too low for 2 units in small unit count properties.

Fill out a maintenance/cap ex worksheet. 

Using percentage of rent for maintenance/cap ex makes no sense.  It is not a function of the rent.  It is more a function of size, tenant class, current condition, etc.  

[Nicholas L.]

@Dan H. I agree with you (and I am not the OP!)  I posted this to give him a better idea of the cost side of this property.

He absolutely needs to know Capex specifics and not use a percentage - percentages are worthless. What if it needs a roof, a furnace and a sewer line? The percentage was just to have a placeholder - some value for him to work off of.

And again, the cash flow is nothing like $1400 a month.  That is not happening on a financed property at this price point.

[Andrew Syrios]

Quote from @Tom Server:

Quote from @Andrew Syrios:

In some situations, I might put a blind offer on a property but I would put in contingencies that would allow me to walk if it's not what I expect and never close without having viewed it.

 of course! I was born at night , but not last night !!

Figured I'd mention just in case. You never know what people take for granted on Internet forums

[Todd Jones]

Quote from @Tom Server:

Would you ever put an offer on a property with out looking at it if it cashed flowed $1400 a months ? 

Here is the situation, the property would cash flow about 1400 a month.. tenants are not letting anyone view the property. I was thinking of putting in an offer since it cash flows,(low offer) and during attorney review allow my self an out with any bad findings of the home inspection or the tenants records of payments not caught up ?  I know I'm taking a gamble of with ordering a home inspection and then tenants not opening doors.. but i feel tenants are probably annoyed with different people coming to see their homes.. but if planning a few weeks notice to let them know of a home owner inspection.. they might cooperate ?  Thoughts?

I’m guessing the realtor website ad mentioned “$1400 a month!”

Well, as you can see, it is not. They omit a lot in that calculation and oversimplify just to get folks interested. Probably just using Rent - Mortgage (with an out-of-date interest rate) = cash flow. That is not cash flow.

Bid on the contingency of a thorough home inspection. If no, move on.
Still tempted? Search this forum and see all the posts of regret buying or “site unseen”.