I have been educating my self in REI over the last several months. I live in Phoenix and originally was looking into getting a home SUB2 to live in. In reading posts on this great site and the books I have purchased, I am starting to realize I could do more with REI than just buying one house to live in…
I was in TX last 2 weekends and found that the market is stable. I found a home across the street from my moms house FSBO. The lady is renting it out for about $750. I called to get details about the home, she is asking $112. Homes in that area are going for about $118-$126. Zillow has it quoted at $126 .
Her only mortgage is about $43k that she still owes on. In speaking to her about her situatioon, she began to explain she has lost 2 jobs in the last six months and does not want to be a landlord any longer. My guess is she probably cant refi the home because her credit was shot.
What is a good starting point to create and offer a win-win for her to get the cash she needs and for me to get a home to hold?
The house looks like its in fair condition just needs to be painted and cleaned up. I can do some landscaping my self and save cash.
I am fairly comfortable with the SUB2 process, but I do not think it would apply here because she needs cash to move on with her life and is not behind on the mortgage. I want to get in on this and make an offer, I do not have 90K to offer her. How can I apply SUB2 in this scenario???
What are you planning to do with it? It is a TERRIBLE deal as a rental at $90K or $112K. In fact, I wouldn’t even look at if as a rental unless the purchase price were $37,500 or less. Are you planning to flip it?
Mike
I would have held on to it since it would be my first. Although, if it would be a terrible deal to buy as a rental I could probably turn around and flip the property. There have been a lot of homes in the area that have been sold FSBO and sold ok.
Thank you for your input on this. I know one rule is you make your money buying the property. I guess if I could get it at 60-80% of what it was worth I would come out ok.
Mike, could you give a bit more detail as to why you wouldn’t touch it for anything <=$37,500? Speaking in rental terms. Using the 50% rule the PI payments would have to be $325 to make this work right?
To the OP, have you thought about trying to flip the property? ARV - 30% - repairs - closing costs - your assignment fee = max offer
MBently, I get the formula you posted except the assignment fee part? If I end up flipping the property would’nt I just profit from the sale less repairs, closing…etc
Either way if I purchased lets say @ $71k there is still a healthy profit to b made. I guess what I’m getting at is how wrong can I go if I purchase to flip instead of rent? I really dont want to be a landlord just yet. I ouldnt mind, I work hard and can manage. I want to get my feet wet any way I can. I want to do it as cleanly as possible and avoid costly mistakes.
Right now I’m looking to get a home here in Phoenix to live in as it would be my first. Thats kind of how I wound up here I have been researhing and reading just to get a house to live in and wound up becomming very interested in REIand what can come of it with hard work and focus…
George Strait had a song about this…“Famous Last Words of a Fool”…
There are hundreds of ways to go wrong flipping – especially when the flip house is in Texas and you’re in Phoenix!!!
What is your plan to manage the various aspects of the flip?
Keith
Oops, I meant assign the contract to another investor.
Based on my quick and dirty property analyzer if you were going to purchase the property assuming $0 repairs your max offer would be $73,043. If you include 6% to retail the property afterwards (again with $0 repairs) the max offer is $68,633.18. I didn’t plug in the other costs involved with retailing it, so that max offer is actually even less than that.
Mike, could you give a bit more detail as to why you wouldn't touch it for anything <=$37,500? Speaking in rental terms. Using the 50% rule the PI payments would have to be $325 to make this work right?
Let’s look at this deal at a purchase price of $37,500.
Gross Rents: $750
Operating expenses: $375
NOI: $375
Mortgage Payment ($37,500, 7% 30 yr): $250
Cash flow: $125, which is an acceptable cash flow for the property
At a purchase price of $90K or even $75K, this is a BIG loser. Since I won’t buy a property that is going to lose money or even one that makes only a little money, I wouldn’t pay more than about $37,500.
Mike
Ah, there was my problem. I didn’t calculate it at 7%.
WOW :shocked so much to consider…
Thanks for everyone that posted. There is definitely a lot of more planning I have to put into this. I think I’m going to keep it local for now.
I certainly do not want to end up a fool!
Two other things not mentioned.
TX has very high property taxes because there are no state taxes. People come in from out of state and think “what a great deal” until they get their first tax bill.
In TX, as of January of this year you cannot do a subject to without the lenders’ approval, an attorney told me that it is very unlikely that the lender would approve it, so not to really consider this a strategy.
Let’s look at this deal at a purchase price of $37,500.
Gross Rents: $750
Operating expenses: $375
NOI: $375
Mortgage Payment ($37,500, 7% 30 yr): $250
Cash flow: $125, which is an acceptable cash flow for the property
At a purchase price of $90K or even $75K, this is a BIG loser. Since I won’t buy a property that is going to lose money or even one that makes only a little money, I wouldn’t pay more than about $37,500.
Who is going to give you a 30 loan on an investment? I have tried and to get a low interest rate they won’t go more than 20 for an investor. ??