[Calc Review] Help me analyze this deal

[Jonathan Hodge]

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*This link comes directly from our calculators, based on information input by the member who posted.

Hi Team!

I am completely new to real estate investing. Interested in house hacking a duplex. The numbers you see are based on both sides rented out. Assuming I move out after the one year FHA requires me to stay. The first year I would not make money on this house but it would reduce my rent from what I am paying renting a 2br apartment.

The property is listed for $260K and I would like to make an offer of 180-195 depending on the condition of the property.

[Heath Ryans]

@Jonathan Hodge welcome to BP.

Property Management and Repairs need to be 10%. 

I have to know first, what kind of shape is this property in that you believe you can get it for 50% of list price? 

[Jonathan Hodge]

Thank you @Heath Ryans.

I increased the Repairs to 10%. I plan on managing the property myself which is why I set the Property Management so low. Is this okay?

I plan on taking a tour of the property this week. Assuming it is in good shape, moderate repairs needed, what is a good first offer?

[Heath Ryans]

@Jonathan Hodge you can manage it yourself and thats fine. But pay yourself 10% anyways so when the day comes, and it likely will, where you don’t want to manage it anymore, you can afford to pay a property manager. Otherwise, your forced to do it yourself because the numbers dont work out. 

If the house is listed, your not going to get anywhere near 50% list price. Without me running numbers, im not sure about a good price. But with only 3.5% down, your not going to make this one cash flow. You’ll need closer to 20% down before this ones going to work out for you. 

[Jonathan Hodge]

@Heath Ryans thank for the feedback! The analysis is set for 216K and the seller is asking 260K, I am a bit confused on why you say 50% off. I'm only trying to get 44K off the listing price assuming nothing is wrong with the property. I would hope this is reasonable. Does it sound crazy if I were willing to manage this place for free? I know a day may come when I may get tired of managing this property but I fell that day may not come for a few years when I have a handful of properties under my belt.

[Heath Ryans]

@Jonathan Hodge in your original post you said list was 260 and you wanted to offer 180. Which now that im typing it, i realize is not 50%. Lol. I was running on fumes last night and didnt re-read it earlier. My bad. 

Still yet, 44k off a list price of 260 for something that doesnt need much work seems unlikely to me. Im not saying dont try it. I just dont think theres a high chance of it being accepted. 

You will be much better off if you budget for property management now instead of being trapped later. Dont count on it being a piece of cake and enjoying it. Have a contigency plan in place because whether that day is today or 5 years from now. If you didnt budget for it upfront, your not going to have it in the budget for later.  

[Cristian Aviles-Morales]

So I was where you are a few weeks ago @Jonathan Hodge 

If it's on the MLS you won't be able to secure a property at that price PROBABLY in todays market. Not saying it can't happen.

But I ran into a quote from a user here if I remember, I think it was @Russell Brazil and it made me think differently. I'll probably butcher the quote but it went something like...

"If you try to force your numbers onto a property to make it work, you'll never move forward with owning that property. The property should fit your numbers."

And he was absolutely correct. I kept looking through the MLS for all these deals and I quickly learned that either I have to low-ball EVERYONE (Which will carry a negative reputation on me..) or I have to have 30-40% capital to put down in order for the property to cash flow. Both options are a big NO.

So I advise you to skip the MLS. Maybe have a realtor set up a FILTER for you to send you listings of properties that are UNDER a dollar amount so that you atleast get some value from it, but ultimately, you'll be hardpressed to find deals there. 

What you need to do is target "motivated" sellers. 

To do this, you can..

Drive for Dollars. Pick your farm area (target neighborhood) and drive around. Find the ugly duckling in the area. Get the address, do some research (public county records, all online) and if you think you can rent the property or up its value, send the home owners a letter to see if they'd be interested in selling their property / or knock on their door. 
The only thing about this strategy that I am still trying to figure out is financing.. but I think the best movement to be fast would be a Hard Money Lender, 80/90% of LTV financed and you bring 5-15% of the rest to finance the deal. Get the keys, go to work, refinance to pay off the HML or flip the property if that is your strategy.

Or, the Direct Mail Marketing which is the whole sending letters out to target areas and hope one bites. Etc etc. You'll need money for this too. And then financing the deals.. probably the same.. HML. Because you're looking for motivated sellers or distressed properties. I just have no experience in going through conventional means (bank/credit union) to secure a loan for these properties. Personally I just don't think they'd go for it but who knows.

Finally, there are sites/applications that you can subscribe to ($300+ / yr) that will generate reports for you based on criteria for distressed owners. Recent divorces, deaths, tax liens, etc etc. Those are the people that you try to go after. 

I hope this helps you and if you want to talk a little bit more, from a newbie to a newbie, I'm always open to discussion.

[Michael Quarles]

Originally posted by @Jonathan Hodge:

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*This link comes directly from our calculators, based on information input by the member who posted.

Hi Team!

I am completely new to real estate investing. Interested in house hacking a duplex. The numbers you see are based on both sides rented out. Assuming I move out after the one year FHA requires me to stay. The first year I would not make money on this house but it would reduce my rent from what I am paying renting a 2br apartment.

The property is listed for $260K and I would like to make an offer of 180-195 depending on the condition of the property.

Good to meet you Jonathan 

I agree with the consensus here.

Real Estate Investing is a business just like all other businesses. In business there are three roles. Technician, manager and  entrepreneur. Your scenario traps you into the  technician role which will such if life changes for you. 

Never buy something that requires your personal participation. And you do not need a FHA loan to buy property.

Consider buying directly from the seller. You'll be able to buy at the 65% of value and if it is a duplex the likelihood of seller financing is strong. 

Also understand that the agent who has it listed will, once they find out that their seller will sell at a huge reduction, step in and buy it themselves. It is an easy conversion for them. Sign a few disclosures and be done. 

[Dennis M.]

The deal is marginal at best . It Will probably barely break even each month when it’s all said and done but if your goal is to save on rent then it might be the best option in your area .do not pay more than 240k.. in other words honor the 1% rule if you plan to use this for a buy and hold property over time