All Forum Posts by: Curtis H.

Hi all, 

Working on a SS that may close soon. The home in question recently got a foundation repair estimate of $11K (in Texas), which is on the high side admittedly. I plan on renting this home out long term, and my question is, do I HAVE to fix the foundation now before I rent by law? If it's deemed safe and I fix the cosmetic cracks in the walls? 

My concern is when fixing foundation I heard it can ruin the plumbing and that's an extra expense. If renters don't care, and it's safe, I don't see the rush until I am ready to sell. 

On the flip side, if I have to re-do flooring anyway, it may be a good time to let them tear the place up.

Thoughts?

@Rick H.

Don't get me wrong, I think you are right. I just don't want to get negative, because that leads to no action. And I vowed that's the one thing I would not do, is not follow through with this. Deal or no deal.

So when you say "negotiating one more time later", do you mean years from now or before we close the deal?

I was also advised to make sure that we amortize the loan based on a 30 year loan, with a balloon at the end of the 10 year term. In addition to that, to make sure that I put in the contract that I can do anything I want to the property, meaning lease, rent, sell, whatever. And lastly, that I get all the tax benefits.

While I would love a discount and a deal, when it's for me to live in, I'm not in it for the profit. My gut tells me I need to get into a home, and fast, as Socal prices aren't going down anytime soon. This is a good opportunity at a reasonable price, but I'm struggling to find that magic number that's too high.

The other thing I've noticed is that when I'm at the local REICA meetings and I ask active investors how they got their homes they live in, almost all of them admit they did NOT get a screaming deal on their own home and they "probably paid too much". So that makes me feel better that it is not unreasonable to have a hard time taking the emotion out of it, even if you "found" the home creatively. Most of them got a Sub2 deal actually.

@Rick H.

@Account Closed

Totally get where you are coming from, in the creative sense. This deal has turned very un-creative with the seller's perceived lack of motivation. But he has done this before and called me back after bluffing and lying. His only motivation is that he has an empty house he wants to collect money from, and he wants an infusion of cash. But neither is heavy motivation.

However, I've been very clear from the beginning that...

A) This home is to live in

B) I don't know what the hell I'm doing

I have no shame in admitting that, I mean that's why I'm posting questions. I refuse to believe I'm the only person who wants to buy his own home through creative means or marketing. And for goodness sake I don't need a forum to give me "cred". I get plenty of that at home. It's a forum. I'm asking questions. Some dumb, some not. But I'll keep right on asking. But with all that said...I do get where the emotion is coming from.

It's anti-climactic. Even I feel that way. I can't believe I'm contemplating paying market price for a home I found through creative means. But I can't ignore the terms as an owner occupant. I can't be too proud. They are important. I can't get a loan for over $350K from a bank over a technicality with my other rental income, yet I have the money. So owner financing is one of a few ways I will get into a home. That, Sub2, and finding a home not in retail condition.

So again I ask the question, from a financial standpoint, if I'm spending $24K a year in rent, do I consider paying market value for a home (as opposed to a $25K discount) if the owner will carry the paper?

If I walk away from this home, and end up renting for another year, as home prices rise, did I really win? That's what I'm asking. Taking the creative spin out of it for now. If I'm looking at this wrong please enlighten me.

@Siye Baker@Brian Gibbons

@Rick Harmon

@Mark Reynolds

@Will Barnard

@Siye Baker

So long story short I downloaded an inspection checklist and did it myself. Advanced things like plumbing, electrical, foundation, etc I couldn't do myself but got an idea. They all seem fairly updated except the roof. I think it has 8-10 years on it MAX.

House is in decent shape and very livable. Kitchen is dated (no dishwasher hookup), it's 1.5 baths and I would prefer two.

Cliffs Notes version...

I genuinely think the home's current value is slightly below $500K. I offered him $415K cash price. He said hell no. He asked for $525K. I laughed and said hell no, the homes on this street are selling for $500K in similar shape as yours. I said the only way I would offer $500K is if he carried paper. He said that is a possibility...then my ears perked up. So I gave him this scenario...

$500K Purchase Price, 4% interest, 10 Year Balloon, $20K down.

He said if the price was $525K he would do it. He went back to saying if he has to re-rent it again to wait for that price he will. After all he owns it free and clear. He's in no rush and has no payments to make.

Those terms above are awesome for someone who could not get a conventional loan, but could afford the payments, like myself. But he is asking a good bit above market to carry the paper. If he hired a realtor he would pay $31K in commissions, not including seller concessions when I would buy the place as is. That would take his $525K to $495K in his pocket. He says he can sell it himself. He's done it before. Yada Yada.

Now in my head I am thinking I'm paying $24K a year in RENT that goes toward not a damn thing but paying someone else's mortgage off. The area stinks and we want to leave anyway, even if to rent again. We want out. So in theory paying an extra $20K isn't any different than passing on the offer and renting for another year, which is a strong possibility of this doesn't go through. I'm on a month to month and at any moment I can get the call, then have to go somewhere else, pay moving expenses, and sign another year lease. So call me crazy, but I am almost willing to meet him halfway at $510K if he will carry the paper.

Is my logic off? Because to me it's not if I'm burning $24K a year in rent anyway, and my out of pocket is $20K on a $500K home.

@Brian Gibbons

@Rick Harmon

@Mark Reynolds

Well tomorrow is the day. I will meet with the seller at the property and make him an offer. I decided to go without an appraiser, as I don't want to go through all of that (and pay) without knowing if this guy is in a different stratosphere with pricing. I will find a form on BP that has a checklist of things to look for and estimate repairs the best I can. My offer will be contingent upon any major issues with a pro inspector anyway.

I can't partner, as this is a home I will live in so that doesn't really work. Nor do I want to bring another investor to a property I do NOT have under contract. Another experienced person with the REICA I go to said the same. Too risky in a market with profits this high.

So here is where we are with price...

Owner "saw a house a few streets over" sold for $650K and was on the market for two days. And it's a 2 bedroom instead of 3 like his. Yeah ok buddy. I said "look, if you are looking for anything remotely close to that number, there is no need for me to even meet you at the property." He changed his tune and said he's seeing from $450-$600K. That's what I'm seeing too. $450K for homes in slightly worse condition than his, and $600K for homes completely remodeled with the latest everything. Looking at other homes in the area sold within last 6 months this is what I saw...I won't put a pic of the subject house, but I will say it is in condition similar to House 1, but less appealing than that even. Surely the less "retail ready" of any of these homes. Renters were in it, so imagine how a renter would leave it. Curb appeal is meh, inside is decent condition, but dated in areas, newer in others. Help me comp and make an offer :-)

I'm thinking his home in current condition is $479K at best, and ARV in this area to me would peak at $545K really done up nice, and $575K in peak buying season. But we are talking $60K to get it in pristine retail shape.

My thoughts on an offer...

Current condition value - $479K

Cash offer - $415K (.85 of current value is $420K)

Terms offer - $479K with at least $60K down payment and 4% interest on $419K.

Lease Option (last resort cause we would still rent it if we had to) - $20K option money to be applied toward down payment, 3 year term, $495K purchase price? Rent credits?

Guys remember, I don't know what the hell I'm doing here, but I'm trying damnit. I think I may even be too high possibly. Many of these homes are selling retail for $500K or so, and the subject house is in rental condition, albeit clean. I will mention the sales on most of these were earlier in the year. They seem to be creeping up now, but not much activity in that area.

Subject House (what I'm trying to buy)
1220 sq ft
3/1.5
6000 lot

House 1
$1018 Sq ft.
3/1
$505K on market for month
6311 lot

House 2 (the one he said sold for $650K in 2 days)
1443 Sq ft
3/2
7000 lot
$575K (over one month on market)

House 3
1171 Sq ft
2/1
$510K
6750 lot

House 4
1262 Sq ft
3/2
$496K
6750 lot

House 5
1485 Sq ft
3/2
$502K
6488 lot

@Brian Gibbons

@Rick H.

@Mark Reynolds

Talked to the owner today about the property manager agreement and told him we are at a standstill until I get proof that the arrangement is over between them. He said we are all square there and that's no problem. The original agreement started over a year ago with the last renter, then it was month to month after that. He just needed to give the PM 30 day notice when he wanted to terminate, and he did that on March 1st. So as of March 31st their agreement was over. I told him he still may need to get in writing that they are getting no proceeds from the sale if me and him come into an agreement even though they showed the property to me, due to them not letting him know about my offer.

Sound right?

I have a local REI meeting tonight and I will ask for realtor and appraisal referrals. Now when looking for someone to walk the house and give me an idea on value, would that be an appraiser, or just an inspector? I would rather have someone who can estimate repairs so I have an accurate idea of how much to take off the offer once I get ARV. But the owner would rather have an official appraisal probably.

@Brian Gibbons

@Rick Harmon

@Mark Reynolds

So I got a FREE prelim title report today and it seems there are no liens and the property is owned FREE AND CLEAR. No mortgage at all. So that changes a lot. For one, his motivation. Besides taxes, which are crazy low on this property, he has no payment to make. Still not sure why he isn't living there, but that is probably a question I should ask him point blank.

It does offer room for a low cash offer since it is all profit to him anyway. If he wants the cash quick, he'll discount. If he's holding out for a retail payday, he will need a nice chunk of cash to fix the house up, but that shouldn't be a problem if he took a loan out on the house.

So what do you guys think now? I feel like I'm not changing my strategy really. Discounted cash offer, higher terms offer.

@Rick H.

Thanks for the advice. I think the best way to go here is what has been recommended to me. Make sure the owner terminates the PM and ask for proof. Then step back in. I don't know how the relationship ended, and if the PM did not expect the owner to give them the boot (verbal or otherwise) I would imagine they are watching this property closely.

@Account Closed

I get your point on spending money before having a contract. I'm a little concerned about that too. But I need to take action and the education will surely not hurt, no matter how this turns out.

But with what you said in mind, I probably will find a realtor to give me comps first, and at the same time ask the owner for proof in writing that the contract with the property manager is no longer valid. Then if things look good from there, make an offer subject to clear title, inspection, etc.

@Brian Gibbons

That's more or less what I was thinking. As long as there is no paper trail until AFTER the agreement is known to be over between the owner and the PM, should be ok.