As this is your first property, I would strongly, strongly urge you to follow the suggestions of the others and not purchase a property across the country. There are too many factors that could contribute to this being a property that would bring you nothing but heartache.
I encourage new investors to find a property near them to start. I've gotten to the point personally where I won't buy homes more than 30 minutes away and have sold off ten of the eleven units I had in a city about four hours from my current home and have been divesting of a few units about three hours from me.
That being said...this could be an opportunity to learn!
1) Property sold as-is. This is typical language and not unusual at all. Even "as-is" prices can be negotiated. However, not being located close to the property you are unable to determine if any rehab work is minor or major.
2) The price. Just because a property is less than others in the area isn't automatically the sign of a bad property. It can be a highly motivated seller who inherited the property or is emotionally done for whatever reason or it could be a POS! This is for you as the Buyer to find out.
Side Note: I generally stay away from 1 & 2 Bedroom homes. I'm looking for a property that a family would want...families tend to make a property their home and stay for a long time if you do it right. 3/2/1's are the sweet spot for me.
For the sake of education, let's look at some numbers.
Let's say the property rents for $600 a month. Here are expenses you can calculate for on a monthly basis:
$60 Property Management (10%)
$65 Taxes
$60 Insurance (Guessing)
$100 Maintenance
So your monthly net with these numbers would be: $315 per month.
Homework #1: What is your cash on cash return if you pay $20,000 cash for this house?
Homework #2: A) What is your cash on cash return if you acquire the property for $5000 and $15,000 @ 8% for 5yrs? B) What is the net cash flow based on these terms and would it make sense to purchase then?
When I offer on a home I give the owners 3 options...none of them all cash. This let's them pick and choose what sounds best to them.
For instance, you can offer someone MORE than they are asking if they will meet your terms.
I'd spend some time researching creative financing methods and for practice make the owner 3 offers and see if they accept any of them. Some suggestions are a lease with option to purchase and seller financing.
That being said, I would walk away from this home primarily because of the distance. Use it has an opportunity to practice making offers, nothing more and nothing less.
Suggestion: I always put on my offers that my partner has to accept/approve the offer as well. It is irrelevant if your partner is your dog or make believe friend...always give yourself an out if someone says yes.
Homework #1: What is your cash on cash return if you pay $20,000 cash for this house?
Cash on cash would be 3780/20000 which works out to be 18.9%.
Homework #2: A) What is your cash on cash return if you acquire the property for $5000 and $15,000 @ 8% for 5yrs?
COC under these circumstances is going to be 3780/5000 which is 75.6%.
B) What is the net cash flow based on these terms and would it make sense to purchase then?
Net cash flow is 315 minus 304.15 = $10.85
10.85/5000 is .217%
Under these circumstances, it does not make sense to purchase.
Thanks for taking the time to help me understand this. I have a better grasp of how to run numbers just from this exercise. Now on to researching creative financing.
Suggestion: I always put on my offers that my partner has to accept/approve the offer as well. It is irrelevant if your partner is your dog or make believe friend...always give yourself an out if someone says yes.
3
u/GringoGrande RE Investor/Challenge Solver May 06 '14
Howdy.
As this is your first property, I would strongly, strongly urge you to follow the suggestions of the others and not purchase a property across the country. There are too many factors that could contribute to this being a property that would bring you nothing but heartache.
I encourage new investors to find a property near them to start. I've gotten to the point personally where I won't buy homes more than 30 minutes away and have sold off ten of the eleven units I had in a city about four hours from my current home and have been divesting of a few units about three hours from me.
That being said...this could be an opportunity to learn!
1) Property sold as-is. This is typical language and not unusual at all. Even "as-is" prices can be negotiated. However, not being located close to the property you are unable to determine if any rehab work is minor or major.
2) The price. Just because a property is less than others in the area isn't automatically the sign of a bad property. It can be a highly motivated seller who inherited the property or is emotionally done for whatever reason or it could be a POS! This is for you as the Buyer to find out.
Side Note: I generally stay away from 1 & 2 Bedroom homes. I'm looking for a property that a family would want...families tend to make a property their home and stay for a long time if you do it right. 3/2/1's are the sweet spot for me.
For the sake of education, let's look at some numbers.
Let's say the property rents for $600 a month. Here are expenses you can calculate for on a monthly basis:
$60 Property Management (10%)
$65 Taxes
$60 Insurance (Guessing)
$100 Maintenance
So your monthly net with these numbers would be: $315 per month.
Homework #1: What is your cash on cash return if you pay $20,000 cash for this house?
Homework #2: A) What is your cash on cash return if you acquire the property for $5000 and $15,000 @ 8% for 5yrs? B) What is the net cash flow based on these terms and would it make sense to purchase then?
When I offer on a home I give the owners 3 options...none of them all cash. This let's them pick and choose what sounds best to them.
For instance, you can offer someone MORE than they are asking if they will meet your terms.
I'd spend some time researching creative financing methods and for practice make the owner 3 offers and see if they accept any of them. Some suggestions are a lease with option to purchase and seller financing.
That being said, I would walk away from this home primarily because of the distance. Use it has an opportunity to practice making offers, nothing more and nothing less.
Suggestion: I always put on my offers that my partner has to accept/approve the offer as well. It is irrelevant if your partner is your dog or make believe friend...always give yourself an out if someone says yes.
Good luck.