Rental Property

[Christopher Williams]

Hi everyone, Im just looking for some advice on this deal before i make a decision. 3 Bed, 2 bath home, fair condition with tenants ( 7 years) owner lives in CA. asking price 30,000, ARV = 50,000. Does any one think it is wise to accept notes on this property? BTW this will be my first rental. What do you think will be a good offer to make?

[Robert Leonard]

@Christopher Williams my first thought is how did you arrive at your ARV? Below 50k is the price point where conventional financing becomes a challenge. That's not extremely important for you as an investor, but it is to retail buyers who are going to be part of your plan A or plan B whether you are a buy/hold or fix/flip investor. Is the area the property is in likely to decline or increase in value over time? That depends on market trends, but a property on that critical price point bubble should be analyzed carefully.

You are also using some terms in a bit unorthodox way when you say "accept notes on this property."  Are they offering owner financing?  I'm not sure what you mean by this?

The estimated repairs are a very important component of acquisition cost of a property.  Carpet and paint can cost a significant difference if you're talking about a 1200 sq ft house vs. a 2500 sq ft house?  Coming up with the total repair estimate is what will help analyze the deal.  Those are the kind of details you need to have to come up with how much you want to offer for the property.  Even if it's not an immediate expense as long as the current occupants are there, it will have to taken care of when they eventually  move.

What utilities is the investor paying?  That's another unusual expense?  That's something that is ordinarily paid by investors who own multifamily properties who end up paying for water.  And that's still not even in all cases.

Here's what you need to figure out. What will it cost to do any deferred maintenance/repairs (DMR)? What will it cost you during the period the property is vacant while doing any necessary repairs/maintenance [holding costs (HC)]? What is the ARV of the property based on recent sold comps of like properties? How much profit ($$) makes it worth your time and effort to invest in the property? Here's your formula:

ARV - DMR - HC - $$ = Purchase Price (PP) A good offer is an amount below the PP to allow for negotiation with the seller. You should come up with a maximum allowable offer (MAO) that fits your formula and is the point where you say, if I can't buy at or below this price, I'm not buying.