House #1
I was on my way to the house last Friday evening to mow the grass. I got about halfway there, and came upon a major accident. The police, firemen, and ambulance were just getting to the scene, and it looked like no one was going to be going anywhere soon, so I turned around and went back home. I went out there the next day, and was it ever hot out. I think the temperature was about 96 with something like 40%+ humidity. I thought I could handle the intense heat, but I became exhausted about 80% of the way through. I got the front, sides, and over half of the back cut before going back home and recuperating. Hindsight being 20/20, it was stupod for me to even try mowing in such weather. While I was there, I checked on the house, and everything seemed okay.
Other Prospects - Part 1
I hadn't really checked out any more houses for a while, but decided to look through some listings on Friday. I found about seven prospects, and wrote down the information. On Saturday, my wife and I went out to look at them. I went to the first one, and there was a Realtorshowing the house to a client. I chatted with her for a few minutes, and told her I was an investor. She said she knows of a prime property I may be interested in, and I wrote the information down. She gave me her biz card, and I left the house. My wife waited in the van, and while I was walking toward it, she said the house next door had a HUD sign in it. I turned around and went to check it out also. Like the preceding house, this one had a Realtor in it showing a client. This agent didn't seem as talkative, so I just looked around a little. When I was leaving, a guy drove up in a truck and got out. I could tell he was an investor, too, so I decided to make small talk with him. I asked if he was an agent, and he mumbled something like "no, I'm a concerned buyer", and kept walking away from me. My first impression was that this guy seemed a little uppity, so I didn't waste my time pursuing the conversation further. After that, we stopped by another prospect. It seemed more trashy, and my wife started to not feel very well, so we went back home. I liked both of the first two houses we saw. They are in a good neighborhood, and would make great rentals.
Other Prospects - Part 2
On Sunday, we both decided to go out for another drive. This time I wanted to check out the house the agent told me about the day before. There was a duplex in the same general area that I've been watching for several months now that I wanted to check out as well. So, we went to the first property. It was NICE. It is a relatively new property (2001?), and it showed very little wear-n-tear. I definately would like to pursue it. The duplex was in terrible shape. The flyer stated that one of the units was being renovated, and both were currently empty. It also said that, when occupied, each unit would fetch $550. In good condition, this would make for good cashflow as the property has a small sticker price ($65k), but it's not in a very good area, and needs a lot of repairs (from what I could see). Since this has been on the market for a while, I may be able to get the owner to discount it a lot more. The problem (or blessing) is that it is owned by a bank. I may bid something like $20k just to see what happens. If my offer gets accepted, I may flip it to another investor and keep $5k for myself.
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Well, it turns out the really NICE property must have caught someone else's fancy as well, because it is no longer listed. It had a list price of $95,000 and a tax assessed value of $145,000. Also, it appeared to need no repairs. Now you see why I liked it so much. :_(
Steve,
Here's a tool I just love to use when determining my initial interest in a property: http://www.jeacle.ie/mortgage/
And, I would urge you to consider that duplex, depending on the extent of the repairs. If it's bank owned, needs light repairs, and has a decent asking price, it has all the potential for being a great BNH property for you. I would recommend this time around, though, that you hire out some of the work. Do you have an investors club nearby? You need to find a decent, cheap contractor to use. Other investors will guide you in the right direction. And, I would reconsider your offer price if you're serious about this one. You should make it more realistic. I'm afraid the bank will just flat turn you down at the price you mentioned. In my own experience, banks don't haggle much. But, REO's can still be great deals. Do you think your wife is ready for a BNH property?
Sorry about that. I screwed up my calculation.
Also, Steve, the other thing I wanted to mention to you regarding that duplex (or any other multi-unit).... When you sell it, you'll determine the listing price usually based directly on the net income (before mortgage) of the property. So, if the two units are individually metered, the tenants can pay their own utilities. That means that you'll be bringing in $550 x 2 = $1100 a month. That's $13200 a year. You could potentially sell this sucker for $132K to another investor after it's in good shape and rented on both sides. Frankly, I'm sure you'd be thrilled to sell it for $115K! And, another investor could consider that a good price!
Thanks for the information Trisha. After exchanging emails with the listing agent, I'm even a bit more apprehensive about getting the property. She stated there was a tenant in place, but the bank told her to get them out (I'm guessing it was all legal). There is another duplex next door that appears to be fully occupied and another right next to it, which is empty and looks even worse than this one. The location is really awful as I would be very hesitant about going through there at night (or really even during the day). The town is located about 15 miles away, so this isn't really good for daily commutes for me. Also, I'm not skilled at SFR's which need extensive repairs, let alone multi-family units, so I'd be treading in unfamiliar territory.
Plus, my wife is 100% against it, which doesn't help matters at all. :-/
I think for multi-family units, I'd be best to get something with less repairs, in a better neighborhood, and with at least one tenant in place already, so that I'd could gain experience slowly. :-)
BTW, you're right about the offer. Although, if you saw this place, you'd probably think $20k was inline. :)
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