First Deal Looking for Advice / Analysis

[Joe Fernandez]

Hello All,

I am new to Real Estate investing and to posting on the forum. I have been spending hours every day listening to the BP Podcasts, reading books and looking at properties. I am getting to the point where I would like acquire my first property. My realtor is sending me SFH bank owned properties off of the MLS. I am in the greater Cincinnati area and the houses I am targeting are mostly in the suburbs and in decent neighborhoods. The one I am looking at now is a bank owned foreclosure listed at around $73,000 it is 3 bed and 3 bath (one bath is in the basement).

There are two paths I can probably take with this property. 1st is to buy and hold as a rental. I think it needs about $10,000 in repairs to get it rented, and rentals in the area should support between $900 and $1050 a month.

2nd option would be a flip, The ARV would be around $105,000 on the low end and $115,000 on the high end.

In both scenarios I would be putting 20% down and paying for the repairs out of pocket. I have looked, at all the various numbers, using some of the spreadsheets available on BP, it looks like it will cash flow a couple of hundred a month, a little more if I manage it myself. Taxes are pretty steep at 2K a year and that seems to eat in to the cash flow a bit…

I know some of the rules like the 2% rule for gross rents and the 70% rule for flipping, and it is not lining up with those but most of the SFH I am looking at in these areas don't quite get there. My realtor makes it sound like there will be multiple bids from investors on these properties and that I am in a weak position because I am not a cash buyer so offering less than the bank's asking price will probably not get me the property and even an offer at the asking price might not get it done in this market. I don't want to make the mistake of paying too much. I am a bit on the conservative side, I would hate lose money on my first property, although I understand that is a risk one has to take. I know that this property is not knocking it out of the park on ROI, but guess I am looking for opinions if this is actually really risky or a bad investment based on these numbers? Given these wide dollar ranges on the ARV and Rent that I am stating, is that part of my problem that I should be more confident on those numbers? Any other advice or opinions on this deal? Also let me know if you need any other data about the property.

[Steve Wilcox]

My biggest suggestion from reading your post is DO NOT WORRY ABOUT WHAT WILL GET YOUR OFFER ACCEPTED

All you can do is offer what works for you. Worrying about what a seller will accept is a very slippery slope. Offer a workable number for you, if it does not work out, if you get outbid, so be it.

The margins on the deal you are bringing up are way to small to be worth doing the deal. If it is a rental there is no way based on a conservative ARV you can refi enough of your cash out after rehab to roll over. If you flip the property by the time you pay all your closing costs, carrying costs, ect there is nothing left for you at the end.

I am a huge believer in the 70% rule for flips and for rentals, and this deal is not even close.

Be patient. Do not overpay for deals. Do not underestimate rehab costs, because there are always unknowns, and it always costs more then you think (especially when starting out).