I’ve been seriously looking at/for my first property for about two months now.
Originally looking at long-term hold because of the potential given the current market. But I can’t seem to find anything that would cash flow. I’ve even involved a couple realtors and they keep telling me that every rental property will lose money for at least the first year. (I ignored them and kept looking.)
I really think the only way I’m going to make money in my area will be to rehab and flip. And to be honest, I like that better anyway. I think it will be better to build up my cash so that in the next couple of years I can purchase some rentals and have the cash on hand to buy them quickly.
But I’m stuck. I look at properties that have been on the MLS for what I believe is under their FMV. Then I think about the fact that I’ll probably negotiate down even further. And I start to work up some numbers to come up with my maximum offer. Many of them have been on the market for months. Then I start thinking… if I fix it up and want to sell it for even more than it’s listed for now… why hasn’t it sold at this lower price???
So I’m ready to go. I’ve got two properties that I’m confident would be a good deal for me. I just can’t seem to get myself past that question: If I’m going to sell it for more, why hasn’t it sold at this lower price?
If you want a motivated seller you don’t want a house that has been on the market for months. If they were motivated it would be sold months ago. I look at rehab and hold for rental. The houses in your area that need rehabbed should be well below market prices. You just have to find one that is low enough and the rehab can be done cheap enough so that at the end of the rehab and purchase you have 80% of the market value in it. You then have a house you can rent for positive cash flow and equity in the house.
You might want to find an agent who works with investors. And, you should definitely buy propertymanager’s book and read it cover to cover.
You need to find out why those properties haven’t sold. A good agent can help you with that. However, you should be able to look at a house in your target area and know what it is worth. Most towns have a real estate section in the paper where you can see what current sales prices are.
Does the property have some kind of encumberance? An encumberance can be a tax lien, fire code or health code violation, lead violation, etc.
Does the property have a condition that makes it hard to be financed?
In my area copper pipes for water and heating are being stolen out of vacant homes. A house without a heating system cannot be financed. This means the transaction will be a cash deal or one where the money to repair the damage is escrowed up front as a condition of the sale. My first property had a fire code violation and I had to escrow funds because of it.
You are contradicting yourself. If you don’t think the property is worth more than you can buy it for, or will cash flow, why do you think it’s a good deal? You have not noted a strategy or quoted any numbers. I’m confused by your post. Are you looking to fix and flip or buy and hold for the cash flow?
At some point after you find properties that you believe to be a good deal for yourself, either buy them and follow through or decide the business isn’t for you. You appear to be paralyzed by having second thoughts.
With due respect, I’m not sure you know what you want. When you’re clear about your strategy and buying criteria, it will be easier for you to make a decision.
Neg. If you’re looking to buy a rental, the current rent market and rehab cost will dictate what price will all positive cashflow. If a duplex is getting $1200/ mo. gross rents, then your TOTAL mortgage (PITI) can be no more than $600. That includes any rehab debt. Your total aquisiton, rehab & holding cost should be no more 80% LTV as a rule of thumb. Don’t overthink this. You can’t take on more debt than 50% of the gross rents. Start there. If 50% of the rents will pay a max. loan of $80k. That’s your maximum price. If the house needs any rehab, subtract those costs from the $80k and there you have your maximum offer price. Develop your buying criteria and stick with it… trust it. Sometimes the best deal is the one you walk away from.
Also, any RE agent that tells you that rentals lose money in the first year is total :bs. What’s supposed to change in a year that will magically make you money? It has to postive cashflow from day one. Good luck