Rental purchase - Need advice!

Rehabbing, Fix and Flip, Rental Properties
1

Hi All, though I read through this forum with some regularity, I appreciate it if someone could spare 5 minutes to tell me what to do here –

I called an FSBO sign I saw in a rowhome neighborhood about 2 miles from my house. The city has just completely demolished the projects that were 1/2 down the street and relocated everyone out of the area into other housing in the city. The city is undergoing some revitalization in the downtown area about 5 blocks north of this house.

I thought it was just a regular SF rowhome but I called the owner and came to find out it is a 2 unit rental. The back unit rents for
$ 1,000/mo and is a 1/1 with a new dishwasher and ktichen. The front is a 3/ 2 1/2 and rents for $1895/mo. It was built in 1890, as most of the homes in this area are from the 1900s. The tenant in the front moved out today (saw that as I drove by) and the tenant in the back is on a month-to-month (has been there a year).

The owner wants to sell this to use the cash to buy a condo in the south of France. His price is 575K but “will entertain all offers.”

I couldn’t get the house # because I drove by too fast and like an idiot forgot to ask him while I was on the phone - but my husband will drive by on th eway home tonight and will get it for me. Then I’ll check the tax records.

What do I need to do to find out if this is a good investment for me as far as monthly cash flow and how could I present this to get it with the least amount $ possible out of my pocket?

It’s close to my house so I’d be willing to property manage it myself.

Thanks so much for anyone who takes the time to respond.

Immy!

2

Hi Immy,

First (and maybe foremost), I would NEVER trust anyone that would willingly live in France! LOL

That said, I believe that this guy is smoking dog food. The mortgage alone ($575K @7% for 30 years) is $3,825…this doesn’t include taxes, insurance, maintenance (high on a 115 year-old house!), managment, and vacancy…the interest rate may or may not be accurate but it’s probably in the ballpark.

Let us know what the other numbers are but this has the makings of an alligator if the rental income is only $2895!

There may be some other ways to get this but I think his asking price as an investment property is high.

What area of the country is this in?

My two cents…

Keith

3

this is looks like a crappy deal. Using slightly different figures than Keith, I figure this property is worth $475k as an investment property. This is assuming its in a hot area; however, since the front unit is empty (and it produced the bulk of the cash), then there has to be a discount. So, I would value it at $450k (at best). If that’s below what the market value is based on comps, then move along…

“smokin’ dog food”…I’ll be laughing about that all day… ;D

4

Actually, IMO it’s kinda hard to say what it’s worth because we don’t know the taxes, insurance (hey it could be in New Orleans and I think that their flood insurance premiums, and probably mine too, will be going up!)…etc., etc.

I’m not sure this can be made into a winner…especially at his price.

Keith

5

Thanks for responding! I am not at home and accessing the forum right now through a library computer, so I have to be brief as there is a wait and you only get so much time. . .

not New Orleans, but my heart goes out to those poor souls down there in Louisiana and Mississippi. . .

I drove by the place again but I couldn’t see a friggin’ house number on the door. This is on a one-way street where the traffic is moving so I couldn’t stop either; tomorrow I will definitely get the house number so I can access the tax records when I get home.

This is in Maryland. I asked about the taxes when I spoke to the man and he said approximately $3500. Now, I live within the same city limits - not in the city but taxed the city property tax rate - and I pay about $3200 on my townhouse, which is approximately 1504 sq. ft of living on a 3000 sq ft lot. My house was built in 2000 and this was 1890s.

Now checking a neighbor of this place a few doors down through the records, they have 2000 sq. ft living on about 5000 sq. ft. lot. Of course, this house has been converted into 2 units.

Yes, the guy is smoking crack (not dog food, way too mellow)! No way this should go for $575K and I had to chuckle when he threw out this price but then immediately said he’d “entertain all offers.” I have to get the house number and get comps and I’m going to call this guy because I want to see this property regardless if I buy it because it’s knowledge for the next similar deal. . .

I’m thinking basic taxes based on what I pay and hazard - about $300 - $350 escrow a month. I know nothing about rental property insurance so what would that be?

I believe comps in the area for row homes used as sf residences are in the mid 300s. These are all old homes - in fact this one is part of the Underground Railroad system - and most need work.

This is in Frederick, Maryland. . .

by the way. . . what is an “alligator” in terms of potential investment?

Thanks for your time - I look forward to reading more on this thread when I get home. . .

Immy

6

Hey,
Just wondering. With the city demo’ing and moving people out and revitalizing the area was there a zoning change that you might not be aware of?
Peace,
Richard

7

Immy,

(1) Maryland is NOTORIOUS for taxes…bunch of left-wing, tax-and-spend Democrats (ooops…sorry, I haven’t ranted in a while!)…this will not help the cashflow!

(2) Insurance depends on so many factors that I wouldn’t begin to speculate. I’m in Louisiana and pay about $250-275 a year for my rental property insurance (smaller, single family homes).

If this house was built in 1890, it is impossible that it was used as a station in the “Underground Railroad”. The Underground Railroad was smuggling escaped slaves starting loosely in the 1700s and continuing up to the Civil War. The end of the Civil War ‘largely’ put an end to slavery (not the Emanacipation Proclamation <----proaganda!)…and the Railroad was gone by the end of the 1860s, so I hope they’re not using that as a selling point!

http://www.cr.nps.gov/nr/travel/underground/

An “alligator” in terms of an investment property is one that costs you money and is constantly eating (out of your wallet!)…you need to feed your alligator!

Keith

8

Going Sunday at 9:30 AM to see this baby, any advice for a newbie on her first property visit?

9

Hi again Immy,

Look for the obvious;

– Sag in the roofline
– Windows that won’t open/close
– Roofing that looks like a problem
– Really old plumbing
– Really old electrical outlets/fixtures/switches
– A fuse box instead of a breaker panel
– Low amp main electrical panel
– Really uneven floors (hint: use a marble!)
– A lot of deferred maintenance
– Water problems
– Mold/mildew problems (other than minor)
– Lack of insulation
– Really old mechanical systems (water heater, furnace, air conditioner, etc.)
– City water or well?
– City sewer or septic?
– Cellar? Crawl space? Piers? Is the building’s foundation strong and adequate (as opposed to weak and/or deteriorating)?
– Rotten flooring or bad floor/ceiling joists and sills, if you can see them (hint: poke with a screwdriver or awl if it looks bad)

A lot of the other stuff is cosmetic and can be fixed realtively cheaply.

Probably a lot more that others can add…

Keith