I am starting a LLC in WV to purchase properties to rent out for now with a 3 year plan to purchase rehabs for resale or rental. I came across a 4 unit dwelling in Wheeling, WV. It is priced at $39,900, which I think is very reasonable, but I am also used to the NJ market. The monthly rental income is $1850 and all units are rented. I was going to go with a HML to get on the title and then immediately refinance into a regular mortgage. Obviously the cash flow can cover pretty much any mortgage, but my concern is the appraisal. The property would need to appraise for a little over $65k for HML and refi to go smoothly. There are a few other 4 families for sale in the area for $70 and $145k, but I’m not sure if properties currently on the market can be used as comps. I spoke with the realtor I’m working with regarding an appraised value, and his opinion was “if you buy it for $39, it’ll appraise for $39, if you buy it for $45, it’ll appraise for $45k”. This didn’t increase my confidence much. The property can be viewed here: http://www.realtor.com/Prop/1051265366 I’ve tried to ask for appraisers’ opinions, but they were less than forthcoming unless I want to dish out $450.
My question is, does this seem like a good deal to anyone but me? Also, I think the property could easily appraise for $70k+, but I would like a vote of confidence before making an offer on this one. Any help would be appreciated.
Ask the appraiser what he charges to do a CMA for the house and the area. That should give you a pretty good idea of what your looking at. Your realtor should also be able to get on MLS and look at some prior sales in the area that match up to the house you are looking at purchasing.
I visited the website and would like to warn you about one thing. It says the units “may”
include stoves and refrigerators. Make sure if you make an offer it says “shall” include the appliances.
Here’s a little story. A couple of decades ago I played golf with the local pro who told me he was moving to another part of the state and offered to sell me his home which was two stories and had full units on each one, including kitchens. The bottom floor was filled with absolutely beautiful antiques that he said would stay.
My wife and I went to do the final inspection and the bottom floor was empty. I went to the realtor and he had worded the contract, “the seller MAY leave all antiques on the lower floor”. So, he left none.
Another note on the importance of words in contracts. My friend, Bill Gatten, was explaining the difference between “a” beneficiary interest and “the” beneficiary interest, and put it this way:
"Would you rather be “A” man who sleeps with your wife, or “THE” man? Words are important!
Ha, good one there. Every appraiser I’ve called or emailed has given me a very rude response when it comes to doing comp checks. Apparently it is illegal.
I’m going to get on my realtor a bit more on Monday to see if she can come up with something favorable.
I would say you have a little more work to do on the cash flow before you consider if the house is worth the price.
Do you know what the monthly or annual expenses are?
You can back into how much you need to collect for rent to make a positive cash flow.
If there is no positive cash flow you shouldn’t buy the property and then it won’t matter what it’s worth.
Also, your realtor is not completely off the wall. An appraisal is an opinion of value, not an exact value. It could fluctuate in your favor.
Also, don’t race to start an llc. Your lender might not lend to your llc depending on your situation. You may have to apply personally for financing.
You can make the purchase contract to “John Smith or Assigns” and assign it to your llc later if necessary. An attorney can set up an llc relatively fast if needed.
I will help you with the cash flow if you like. Let me know.
I have all of the above information:
Taxes: $415 annually
Insurance: roughly $500 annually, I would go though Nationwide
Utilities: Tenants pay in two units, I pay in two units, all units are metered seperately, gas heat, I pay water & sewer for all units
Snow Removal: Not an issue, there is only street parking and that is taken care of by the township, as far as steps, landings, etc. that will be the tenants responsibility
I have an ROI calculated, my gross income is $21,600 annually, and I’ve calculated my expenses at a little under $11,000.
If I get this property under contract I surely will have a home inspection done, I’m not stupid.