So we just started getting into real estate investing full time about a month ago and I came across a 5 bd, 2.25 bth house that the guy is selling 175k under comps in the area, and his ad states “Investors!”. He’s selling for 525k and the zillow estimate was in the 700’s on the home and surrounding ones. The only thing is he wants to be cashed out. This would be our first deal and that is a lot of money on the line. Should we pursue this with a hard money lender? Will a lender even give us this much since this would be our first time borrowing? Is this a good idea for our first deal or is there too much risk involved? Thanks for any input
Where is this?
First, I would get the idea of “Zillow” out of your head and vernacular…it’s a crapshoot!
Get some real comps from the last couple of months…
We’re currently shopping lenders for both a house for our family and also investment properties. Seems like I’ve been seeing some banks look at around 41% for a total debt to income ratio. Take a look at your income, what the mortgage would be for this place, and see where that leaves you. Of course your credit history will play into it as well. Expect you may have to pay a little higher interest rate for NOO property.
Powder - I assume you are planning to buy it for your family. Am I correct? If not, what are you planning to do with the place? The maximum you should pay for the place will depend on your exit strategy (what you are planning to do with it…).
If you are planning to flip it - consider one thing - this guy is trying to sell this house and the best offer he got was yours for $175k below comps. The moment you buy that house guess what is going to happen - it will become one of the comps in the area. The house you bought below comps is now within comps for the area… If you try to sell it, you will find buyers looking at comps and offering you below the amount you paid.
If you need to fix it up before flipping it - please consider all your costs and profit, including holding costs. That 175k spread you are looking right now can turn to zero very fast…
If you are planning to rent it think about how much you would need to rent it for to be profitable…
Hope this helps. Good luck!
Thanks for all the advice guys, it always helpful to hear what you need to hear from somebody else. My father and I are so motivated to go and make our first deal that we look too hard into deals that just aren’t there. After reading all of what you guys had to say I think its just too much on our back at this point. Thanks again guys, and I was not going to get this house for myself, I was going to buy it and sell it, but you guys said a lot of correct stuff. Its funny, have you guys ever looked up county records on properties? Its very helpful to see the sale history of the home, sometimes they are bought by investors just weeks early at such huge discounts then you see their advertisements on craigslist and such and I’m sure people have no idea how cheap they got these homes for, anyways thanks again and we’ll continue to dig and find a deal, just right now starting out we want our first deal so bad!!
Where are you that you’re looking at a deal over $500K as your first deal? What are your goals? Do you want to rehab & resell? Do you want to do some fix-up and rent out? It would sure take some pressure off you if you were going for cheaper properties. A $500K deal in today’s market could prove to be a very expensive lesson.
Our first deal was advertised in a local newspaper by a RE agency. It turned out to be a good deal even at asking price (we still got it for less obviously), but it didn’t require a lot of digging or anything else. It was simply an older building that had minimal money put into it over the past 35 years. You don’t always have to go to great lengths or over analyze things.