A rental property opportunity: propportunity
So I thought I coined a new word tonight- propportunity. Definition: An opportunity involving real estate (property) at a deal. After a quick Google search, I realized it was already in use, but here is why I created it (or so I thought).
We submitted an offer on a property and we are waiting to hear back! Late last week, a single family property in a great area (good schools, above average property values, well-maintained homes) popped up on the MLS as an REO (bank-owned) foreclosure. I contacted my agent and her partner took a look at it as soon as the ice storm that hit most of the U.S. cleared up a bit.
The Good, the Bad, and the Ugly
So here's the deal. The good:
- It's listed at 71% of market value if it were in good shape.
- The estimated monthly rent would be 1% after we make repairs which is almost impossible to meet or exceed in a good housing area in our target market.
- After repairs (assuming middle of the road repair costs), our total investment would be at 86% of market value.
- Good schools and good neighborhood = more than likely good tenants.
- We have enough of a cushion to take care of a hefty amount of repairs and then some.
- The property backs up to a busy road with some noise.
- We'd have to hire a general contractor because the amount of repairs require onsite supervision.
- It's obviously not a duplex, which we had hoped to buy. But, the market we are looking at has very few duplexes available for purchase and all of them are in less than desirable areas.
- Just based on a visual inspection, it definitely needs work. Even before an inspection reveals further problems (and they always do), we are looking at $20-30k in repairs. New flooring throughout, all interior paint, appliances, two new windows, new lighting fixtures, maybe a new back door, maybe some new interior doors, yard clean-up, and...
Here's the ugly:
- MOLD REMOVAL! My husband and I agreed that we would not embark on major repair efforts (no foundation repairs, no whole-house system replacements like plumbing or electric, etc.) It looks like there may have been a leak in a utility room which spilled into the master bedroom. There are two big questions we need to answer before we go through with a purchase: 1) what kind of mold are we dealing with?, and 2) how extensive is the mold damage?
Sticking to our principles
If you read my post on our criteria for rental real estate, you will see that we are sticking to those.
- Patience? Yup. Been at this seriously for over 6 months now and this is the first offer we've made. We are also willing to walk away, even if our offer is accepted, if the repairs are too costly to make criteria #2 ad 3 work.
- Make money on the buy? Estimating 85% after all expenses.
- Monthly rent is 1% of the market value? So far so good.
- No significant work required? Mostly true. This remains to be seen pending an inspection.
- Willing to do cosmetic updates? We have the cash available and allocated towards cosmetic improvements, which will be needed to rent the house.
We know that four other offers have already been submitted, which means this property will almost certainly go for more than list price. We just submitted an offer tonight for a little over 1% of the list price to show that we are serious contenders without overbidding early on. The earliest we will know anything is Monday, when the bank opens. We are in a strong financial position with our all cash offer, but there are a lot of investors in the market right now who may also have the resources to make an all cash offer as well.
Either way this turns out, it has been an exciting couple of hours and a good exercise for my husband and I to practice analyzing a serious propportunity together.