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Updated almost 16 years ago, 02/24/2009
Need another deal breakdown.
This is a 4plex in my area. He has it listed at 240 and its been on the market for almost a year.
Rents right now are 490,500,500,500.
Taxes:4000
Each unit is 2 bed 1 bath
Each unit gets garage stall
I dont know if this link will work but here it is http://bismarckmandanhomes.com/mls_detail?mls_number=305569
Why do you guys think no price drop in a year? Do you think he needs to get that for it? Or just is in no hurry to sell it because its paid for and making him money?
Dave,No price drop in a year means an unmotivated seller, its obviously overpriced. You would have to purchase for around 90K to cash flow properly.Move on. :cry: Jim
Ok I know this 50% rule is safe and all, but is it realistic? I mean market value on the thing is 210 and he has it at 230, theres no damn way you can find something like that for 90 when market is at 210 ya know?
Yes, operating expenses are 45% to 50% of the gross rents throughout the country.
Yes, you can certainly find something like that for $90K. In fact, last year I bought an apartment building with higher gross rents than this deal for $30,000 (13% of market value). You've got to do the work to find great deals! If it were easy, everyone would do it.
Mike
What kind of things can you do to find deals like this? I mean if something like that hit the MLS listings it would be gone in an hour.
Dave, you may be in an area where it is very difficult to find cash flow properties,begin to look outside your immediate area and see if you can do better. Join your local REI club, network with successful investors. The best deals will not be found on the MLS. Jim
Dave,
How much cash flow do you expect to recieve for the property if you could get financing at 100%?
My rule of thumb for any deal I do is that it has to cash flow based upon no money down.
If it made $100 a month I would be happy as long as the payment was made every month. Im not really looking for profit; of course I wouldnt object to it either.
Dave, If your not investing for profit, why are you investing at all? Jim
Im 23 years old, Like I said if I had 3 $200,000 properties rented out that only made enough to cover payment and expenses, when I retire at the age of 53 those 30 year notes will be paid off and I will have $600,000 (more with appreciation) worth of property to retire on.
Dave, If you plan on holding the property for 30 years you will have expenses of at least 50% of the gross rents, you really do need to study the landlord forums to help you understand all of the expenses involved with long term investing. There are many investors who have lost their properties to foreclosure because they underestimated the cost to hold these properties long term. If you truly feel that if PITI is covered by the rent it makes a good investment you better have a very good day job or very deep pockets. Jim
I'm with you on your plan, Dave. Acquire now, pay off, use the income to supplement your lifestyle.
Just be sure to buy right so you can hold on to them through thick and thin. Five years ago vacancy rates were well into the double digits. Almost certainly during the next 30 years we'll see that, or worse, again. I tend to use 40% of rent for expenses and just want to be above break even, essentially for the same reasons you state. However, I'm buying SFRs that rent for about $1000.
There are numerous four plexes in this area that could be had for $300-400K. Two BR units that are going to rent for $600-700, at best. When you have these on a block with a bunch of other similar units and small apartment buildings, though, they're just "apartments". So, $600 would be about the right rent. Its just as much, if not more, work to lease a $600 apartment than a $1000 house. And just as much work to run it. Probably more, in reality, since you're tenants for a 1 or 2BR apt aren't going to be as good as for a 3 or 4 BR house (gross generalization there). And, doing maintenance on a 4 plex, or especially a larger building, will be more expensive. A new furnance in a house is maybe $2000-2500. A new boiler in a fourplex is ten grand.
Arguable, you'll have exactly $600K in equity at the end of 30 years. Now if RE follows the long term trend (that is, ignore the last 6-8 years), you'll probably have nominal equity of $1.2-1.5M. However, those dollars will be worth correspondingly less. So, in 2009 dollars, you'll have exactly $600K. That's the think with long term planning. You can start with "I want $5000/month to live on". But then you have to say "with inflation, that will mean $12,000 in nominal dollars when I retire".
I think you guys also need to look at areas. Jon you are from Denver, Jim I dont know where you are from. But I live in Bismarck,ND. Vacancy rates here are like 3-5%. Our real estate hasnt depreciated like the rest of the US, in fact there was a report released that said Bismarck was the city in the US with the greatest apprectiation of property value. Not saying Bismarck is bulletproof, just that you guys may face different issues then we do here.
Dave I don't care where you live. I can come to your area and find a MOTIVATED SELLER. You are young and maybe a little bit more understanding, but the market is what it is.
You are to evaluate properties the same no matter where you live. Jim said it and so did Mike. I can find deals in areas that seem like there is no way. You have to find the MOTIVATED SELLERS. If they are not motivated then move on.
Listen at what you said the property has had no offers in a yr. If it is such a GREAT DEAL or even a GOOD DEAL why have you not had any takers in your AREA. The reason is the SELLER is not MOTIVATED and this is NOT A DEAL that I would do.
SUCCESS BREEDS SUCCESS
I hear you, I guess I dont know if theres been any OFFERS on it but what I was saying is that theres been no PRICE DROPS in a year and I would say you are right in the fact that he us unmotivated but that could be good or bad in the fact that maybe hes unmotivated because he doesnt care if he sells it or not cause it makes him profit, or because he owns his own contruction company and this is his write off to show loss. Whatever his reason I can see how its a bad deal at 240, but if it dropped to 180-190 I dont think it would be a bad deal. I just dont think you could lose on buying a 4 unit below market value. But then again ive never owned one.
Dave I don't want to rain on you parade. I'm just trying to point out what you could be getting yourself into if you don't take a closer look at the proper way to cash flow. What happens when the roof needs replaced, or one or all furnaces go out, tenants trash the place to the tune of thousands of dollars, even smaller maintenance and repair items become quite expensive over time. Over 30 years I guarantee these things will happen, probably multiple times. Without proper cash flow all of these items come directly out of your pocket. If you have enough money to cover these items outside of the rents coming in go for it, it's up to you. Jim
I would send the guy an offer for 160K and see what happens. He might negotiate or he might say screw you. It can't hurt to try. It's always a good time to buy real estate as long as you are buying at a bargin and are in tuned with the local market.
The difference between an investor and a speculator is that a speculator can only make money when they sale the property, an investory makes money each and every month. Which one are you going to be?
I would heed to Mike and Jim's advice. They have experience (at least I know Mike does). Check out Mike's blog of his day to day adventers in real estate. http://www.1minutetorentalpropertyriches.com/id53.html
Oh, by the way, after the guy says screw you, resubmit the offer 1 month later.
You may ask why? Valid question and here is the answer: Lets assume I have a highly MOTIVATED seller in desperate shape, and lets also assume they owe only half of the current value. They will not hand over the keys and walk away from 50% whne they could simply MLS list with any idiot agent and price it at 85% fo market value. I promise you that property would get at least 10 offers (full price and above the very first day! Properties priced right are actually moving here as many new first time home buyers can now afford to buy and the interest rates are at record lows.
My only point here is to say that I believe area does have a factor in how good of a deal you can get from a MOTIVATED seller. In OH, where MikeOH buys, it is far easier to get properties at 50% of value and even less. Same with MI, IN, and other parts of the midwest. There are even parts of CA where you can buy at steep discounts from motivated sellers, but not in all areas, regardless of the amount of motivation.
I do agree that finding a property at a discount can be more difficult in some areas than others. Unfortunately, that doesn't have anything to do with the question of whether a property will cash flow or not.
Finding a great deal is difficult in every market. If I looked at the local MLS right now, I can guarantee you that there wouldn't be a single property listed at 50% of the market value. It's just not that easy.
This is the part I disagree with. The last house I bought is a perfect example. The seller knew someone who knew that I buy houses and got my number from her. The seller called me twice and practically begged me to take the house. To make a long story short, I bought the house for $20,000 and a nearly identical house sold recently for $52,065. I paid 38% of the market value.
Why would this woman sell the house to me at this price? She could have EASILY sold this house for much more by simply listing it on the MLS. The answer is that in her own mind, she was DESPERATE! She had inherited the house two years earlier when her father died and owned it free and clear. It sat vacant the entire 2 years with the daughter paying for insurance; all the utilities; paying to have the grass cut; etc. The stress was building on her and then one day she decided that she wanted to sell it NOW! I went to look at it; signed a contract with her 15 minutes later for a cash deal with no contingencies and closed a few days later. She told me at the closing that she felt as if a weight had been lifted from her shoulders.
Was she crazy not to simply list it with an agent and sell it for more? Was she silly to feel desperate after holding the property for 2 years? Why didn't she simply sell it 2 years earlier so that she wouldn't have felt pressure building on her?
I don't know the answers to these questions, but it doesn't really matter. She got rid of her stress and I bought a property for 38 pennies on the dollar.
Mike
Originally posted by MikeOH:
#3 Off Topic Contributor
- Attorney
- Viera, FL
Originally posted by Dave Antonelli:
Here's a Bismack, North Dakota 4 plex for $119,000 list that took me about 5 minutes to find online. Now naturally I don't know what condition it's in because I'm sitting at my desk in Indiana, but I'm already at about 50% of what you already thought was "market" at list price with no negotiating. Expand your mind a bit. Drop the other deal. It's a loser. Find out the story on this listing and report back. You'll get into a good deal. Start hunting.
http://www.realtor.com/realestateandhomes-detail/618-3-St-N_Bismarck_ND_58501_1105607298
#3 Off Topic Contributor
- Attorney
- Viera, FL
Dave,
I just did another search on Bismark for kicks to see how high multi units go for in your market. Currently the highest priced property on the market I can find is listed at 240K!!! 210-240 isn't "market" it's overpriced. Dave...you got a case of property tunnel vision.... Be careful about that. It's very hard to make money at real estate when you're overpaying.
Tim