Morning, RE pros…
given the pending economic slump worsening, I am a little perplexed about how to approach my home purchase.
Option 1 - Buy a REO fixer listed at $200k. The main areas - 1st floor and 2nd floor are livable and safe.
- the floors are not level.
- the basement is not finished - concrete floor
- the attic level - not needed for living, but usable, is not finished.
I am having a contractor look at the floor and structrual engineer review the property. Assuming it is sound, I would move forward to purchase.
Option 2 - Buy a home that is already rehabbed and ready to go, but is listed at $235k
Option 3 - Buy ahome that is about $175-180… what I call the ‘basic living needs’ property. Clean, safe, quiet, 3bdrm semi detached.
There are pros and cons to each… like going with option 3 and having more cash in pocket.
Going with option 2 and having to make no repairs, and more equity to leverage to purchase other properties…
going with option 1 and having a lower mortgage than either option if accepted by the bank. yadda yadda
Your opinions are greatly appreciated.
In a declining market, I buy with a lot of equity. That equity is your insurance that you can sell the property and that you won’t be upside-down. Therefore, I would consider the percentage discount to market value of these properties.
Additionally, if you are planning to get into real estate investing full time, then I would try to keep your personal expenses as low as possible. If you live frugally for a few years, that will greatly help you get your business started. Sacrifice now, benefit later.
Good Luck,
Mike
This is great, I appreciate it. The conflict is buying frugally does not enable buying with equity. It’s more like $150-$175k with little to no equity or buying $230-$250k+ with equity but not so frugal on the piti etc.
Suggestion?
Buying with equity must be tempered against what it takes in time, money and sacrifice to dispose of the property for what you think you are going to get. IMO the price difference between the 3 options is not huge and I would lean toward the 235k unit. However, that is based on not having a feel for the options.
First, good job getting a contractor to give you a bid before you commit. Better job to find someone who is interested in working for you on this house and maybe others over time and will give you better prices than a big firm. Careful here as contractors can rip you if you do not get a good one, but I have found great people by doing homework. For example, an established contractor who works on his own or has 1 or 2 people working for him and wife doing the books, making his appointments, etc, may be a good sign if they are good people. With this approach, raising the floors etc may not be so expensive.
I do like the idea of buying a fixer to live in. The down side is I always live in old properties needing work and my renters get nice newly renovated properties. One day I hope to live in a place as nice as I rent! Living in a place often gives you a better insight as to what to do and how unless you are one of the gifted few who can walk into a place and envision the details of the turn around.
Is seller financing available on any of the properties?
Mornin,
If seller financing is available on any of them, it would be on the $235 property. It is owned by an investor/rehabber. I’m not certain about that at this time.
Catalog - what do you mean by " I would lean toward the 235k unit. However, that is based on not having a feel for the options."
none of these houses is at the top of the market for the area, but I’ll have to get comps from my agent. I can’t imagine the semi-detached having much equity, and it’s on a busier street, but similar properties to the one I used to live in in '97 is now listing at $100k-$125k more.
Talk about appreciation.