I recently met with a real estate agent to talk about getting started in REI. I was told that the best way to start was to purchase my first home below market value with a owner occupied loan. That should be my first step.
(So he says.)
He showed me a home on the internet that was bank owned and being sold below market for $250k. The market value on this particular home was priced at $310K.
He said I could purchase this home at $250k wait 4 months and refinance and pull out the equity of $60k (310-250).
Make sure those numbers are accurate. Find out why the bank is selling it for 250k…does it need repairs? Is there functional obsolescence? What’s the location in the subdivision in relation to the other comparables? etc, etc…
Second. Be careful pulling equity out. Unless you are using it for down payment on your next deal I would just flip the house to get access to the equity instead of paying interest and a higher payment on equity I earned from getting a good deal (or any equity earned for that matter!). but if it still cash flows after pulling it out and you can use the house as leverage, go for it!
I will definitly dig deeper on this one. The realtor showed me the market value on this particular home on zillow.com. I heard that zillow can be inaccurate. If I do pursue this property I will have him pull comps from similar houses that sold in the neighborhood.
So I will be able to pull the equity out this way? If so I plan on using the money for just that, a down payment on my next deal.
How would “flipping” work in this situation? Do I just tie up property through earnest money deposit and a good contract and sell it to another investor or buyer?
zillow.com is a joke. It’s very inaccurate in most cases. If anything go with their low end of the “zestimate”. I’ve had zillow quote 600k on 400k homes, Regularly. Be careful if the agent you’re working with is giving you zillow.com data. They probably don’t know what they’re doing. Any professional agent will show you local comps and try to get “model matches” with similar lot & location characteristics. I don’t want to read too much into this, but an agent showing “zestimates” may just be trying to get you to buy something so they get a commission - because zillow.com gives overvaluations ALL THE TIME.
zillow also doesn’t consider the location of the lot or other neighborhood variables, it’s just a number cruncher. You need a pro to analyze the local market.
Just my personal opinion but your typical real estate agent is the wrong person to go to for REI advice. An owner occupied loan to me is code word for a conventional type mortgage with 10 - 20% down.
Next, a word of advice: NEVER, EVER BUY OR SELL A HOUSE WITHOUT COMPS FROM A REAL ESTATE AGENT. zillow.com is not a substitute.
Finally, before buying a property, you need to know what your exit strategy is. For example, if you’re going to fix & flip, run your numbers for repairs and the profits you’d like to make. Then make your offer. Line up your financing (OPM is the best bet). You should submit a proof of funds with your offer. Also, keep in mind that if you really want the house, the way to communicate that is typically to put down $500 - $1K minimum in earnest $ as far as REOs are concerned.