I am a home owner, have never bought investment property before or been a landlord. I came across a unique opportunity driving through a neighborhood. It is for sale by owner, priced at $155K (firm), valued by tax assessor at $128K, is near a historic park managed by the US National Park Service and a community college. Houses rarely come up for sale in this neighborhood. It is a 1936 ranch/bungalow in very good (not great) shape. Move in ready or rental ready. The mortage is approx. $885/mo and rent in the area for appts is $750 - I can’t find a comparable home rental. I plan to rent it but am nervous about covering cost. I could start out at $800 and increase annually by $25/mo eventually covering mortgage. The real value here may be the appreciation over time. I’m uncertain about ROI and becoming a property manager and could really use input/advise - what would you do. Thank you!
This is said with kindness: if you can not make the time to study what you are investing in, you doom yourself to failure. There is no way to invest that an average citizen can understand everything about it with only 25 words of information.
If you are not willing to study, then stick with money market accounts and the occasional mutual fund. Otherwise you will lose your funds. You can not substitute luck for knowledge when investing your money.
This is like asking a person if they should marry one person or another. It is an emotional decision. If you love this house buy it. If you want to make money don’t buy it. There is no way this house will ever be anything other than heartache for you. You will add not only the difference between the PITI and the rent you can get but every time something breaks you have to pay that too. This house will preclude you from taking nice family vacations or even having a nice thanksgiving most years because you will be feeding this house instead of your family.
Negative cashflow is not just the face value of the deficit. For example it will affect your ability to get credit in the future because of the debt to income issues. A lot of people say they will pay $50 to $100 a month just to own a great asset, but it will turn out to be a much greater burden than you think. You can raise the rent but you will not be able to get much more than 5% or so max more than the neighborhood rents for and that will only last a few months before you are doing a makeready again for the new tenant.
Agreed with all of the above. If this is an investment that you’re taking to heart, you’ll likely end up under water. Investing should never involve emotions if you can help it. However, if this is a place you’re looking to eventually retire in in 20 years, sure. If you could get someone to rent it for most of the costs while you foot the difference, it could almost be like contributing to a retirement account. If you’re just looking to speculate, this probably isn’t the time to do so, and especially with those numbers. Speculators, the smart ones anyhow, almost always leave themselves even a little room for error to get out at breakeven.
No time to read a book means no time to call repair people when things go wrong, no time to go clean it up to get it ready, no time to inspect it, etc.
Some people read and study RE for years before they feel comfortable getting into it.
I agree with what everyone else says but would like to add a few things…
Why is it so unique? It won’t make you a lot of money so unless the architecture is out of this world or something I don’t understand why it is unique? And if the architecture was out of this world you wouldn’t be buying it for $150k and/or renting for $750 anyways.
Why could you only get $750 in rent? Most apartments don’t rent the same as houses. You couldn’t get $1,000 a month for the rent here? You’d certainly give yourself a little more wiggle room but still wouldn’t have much in the way of cash flow.
I can say I would pay 100-200 a month now to live in an area where I WANT to retire. If a place became available in a highly sought-after neighborhood, maybe an area where you want to retire but don’t want to, nor have the money to live there right now. It’s almost like putting money into a retirement account. So, paying 100-200 a month for 30 years on a 850 mortgage is STILL a discount. However, you better be damn sure that this is going to be held for at least 10 years or more or you’ll end up under water.
If you don’t have time to read a book, go to your local REIA ask around who is a good experienced investor and pay them to guide you through the deal.
I am not a lawyer and have no intention of going to law school, but I know how to find a good one that can help me put deals together, if and when I need one.
Afraid of being in the negative, just put more money down to get your mortgage lower than your estimated lowest rent for the area. (make sure your mortgage, taxes, insurance and other costs is covered by the rent).
Lastly, no such thing as $155K “FIRM”. Estimate the amount of work that is needed, subtract that from what you believe the property is worth in good condition then just make you offer. Don’t be afraid to hurt the seller’s feeling by making a lower offer. Guaranteed he’ll get over it.
If you can’t do any of the above, then walk away. If this is just a one time thing for you and you really have no desire to be a real estate investor then you can skip the books. But if you want to invest in real estate, then by all means buy this house and start hitting the books, courses and seminars to educate yourself.
Anytime you have negative cash flow it will be considered a Terrible investment opportunity. Run, don’t walk, away from this deal!
Again, if his reasoning was that he was going to live there when he retired, why not pay 1-200 a month for a property that in all likelihood is going to be worth double the amount it is today? It’s nothing more than contributing to your retirement, and on top of that I’m sure there are tax benefits as well. Of course, 30 years is a long time and if you DON’T keep the place longer than at least 10, or until it appreciated in value (assuming it does) then you could very well be underwater when you go to get out of the place. This is probably the only reason I could ever justify buying a property that cash flowed negatively.
Chris, if he is looking for a retirement home in this area, then your statements are most certainly correct. However, he didn’t seem to lead on that he wanted to retired there. We’ll see once he decides to reappear on the board!
Ha, I think he made it sound more like speculation actually, which should probably be left alone if you’re a novice.