Getting offers to buy homes 25% off of apprasial, would you buy these and rent them?

Haven't been posting as much lately as I have gotten deeper involved in a depressed Mid- Michigan real estate market. A huge buyers market.

What started off as buying a few rental homes to setup a possibile retirement and long term investment strategy has now turned into something I may pursue full time and try to make a career out of. Still kind of a dream but the hustle and bustle has been right up my alley. I think this could be fun and profitable. Havent enjoyed something this much since when I started gambling at a higher level.

Like most things I enjoy, I become borderline fanatical about it. I have read somewhere around 20 books in the past 2 months and have closed on 1 property and closing on the other in a week (not too mention I bought a primary residence also, making 3 homes). Up until this I had only bought 1 house my whole life.

Here is the weird thing, as word has got out people have been coming to me and pretty much begging to take these homes off of their hands. Not sure if this is a good thing. A couple of friends of friends have homes up for sale for a year or so and said they will take around 20-25% less than appraised value than they have listed for right now on the market and this is just the beginning ofthe negotiation process.

This is moving way too fast and not sure I want to deal with anymore so quickly but also afraid the time is right and the oppurtunity will pass me by. Just had a buddies lawyer call me when word got out and said he has a client in bad finanacial situation and will take 122k for a 172k appraised home (house is on market right now for 151k after dropping it). This is just one of 3 type examples that have came my way in the past week from people who have heard I am interested in buying properites.

Off to a way better start that I expected at this, as my 3 soon to be purchases (one is my own home) are WAY WAY better situations than I thought I would find getting started at this. The thing that has me really scratching my head is now that word has got out I have sellers CALLING ME (not me calling them) and their offers are even better. With interest only loans I can see a small (100-200 a month) positive cash flow and have alot of equity in these that I draw out sooner or later in life. There are a ton of hidden costs involved in RE investing and mostly it is a longterm investment, so I am not nieve to think buying some homes underpriced, means I am instantly rich. Never have did the whole landlord thing either and may look into hiring a property management company if I get more homes.

Would love to hear others who have pursued this as a full time job. Would love to talk off forum with you or would love to hear from others on here on what I/they would do.

Something I have noticed and read is that most people will buy the books and even make a few phone calls but when it all comes down to it they won't jump in. I figured I would shoot then aim later at the start as I knew if I didnt buy 1, I would find an excuse and put it off to do it.

I have went above and beyond with the research and feel strongly that the time to buy is now. I first said I was scared to do something like this but realizing that I could lose my high paying job in the blink of an eye my whole attitude changed and I realized I am more scared to NOT do something like this.

Would love to hear from my RX family who have helped me thru the thick and the thin in my life the past couple years. I have debated on posting this the past few weeks because of all of the talk of staying to gambling subjects but in my eyes this is gambling and money at its highest level (plus havent posted an offtopic in a long time and figure I was due, LOL). I don't like the word gambling, as to me gambling is when someone doesnt put the time and effort into risk and that is not the case with this or betting on sports for most on this forum. I think most on here (hopefully myself also) have the right attitude to succeed in things like this if they ever went for it. I figure this can be a very educational topic for most. Thanks for taking the time to read such a long thread!!!!

I would not be interested in buying homes in Detroit at 25% off.

-Sean

IMO, that is a very dangerous market to be doing that in-but you should certainly know it better than I do.

It's never a good sign when people can't sell after 12-18 months.

One thing I didnt stress enough after reading my above post is how I think you can take advantage of a buyers market that we in the Midwest are in. Just read in the paper the past week how home sales are up for the 1st quarter of the year as most are downsizing and buying cheaper properties.

Not trying to speculate (it looks like I am but I am not) but basically trying to buy good homes at well below market prices from distressed sellers who need and want out.

Also want to add that if this goes well I can see buying 50 properties over 3 years or so. They may seem farfetched but if I keep finding deals and have the money (which could be a problem).

Also these are not slum type propeties. These are all in the suburbs. Rent goes around $800-950 and homes are nice. I dont want to get involved in the whole slumlord thing.

Real Estate investment in Detroit at this time?

No thanks.

I dont live in Detroit. I live in the suburbs 1 hour (at least) north of Detroit.

50 homes in 3 yrs= disaster. be careful. don't forget about insurance[property and home owners] if a roof starts leaking, do you have cash to fix it. so many problems can happen plus what if you can't rent them, can you pay the mortgages?

how does the rent relate to your carry costs (mortgage, taxes and insurance)?

how difficult is it to get tenants?

appraised value is irrelevant. I am sure if you were to get input from some of the mortgage brokers or lenders on here they would confirm that in spades. One can make an appraisal look how they want. In fact, every time I refi my broker asks me how much I want my house to appraise for, and I am supposed to take them seriously? No chance.

The market is what the market will bear, it is simply Econ 101. Supply and demand. If a house appraises for $172 and sits on the market at $151 for 6 months, guess what, FMV is somewhere below $151.

Now, this has nothing to do with whether or not you can do this as a living or if it is a good idea to buy these places, but you shouldn't put any value in appraisals.

Additionally, appraisals lag the market, both in increasing and decreasing markets. They are based on (hopefully) recently sold comparable houses. How good is an appraisal using places that sold 3 months ago when you are in a declining market? Additionally, in declining markets there often are fewer transactions making finding comps that much harder.

If you can fairly easily find tenants and they carry themselves (or close to carry) and you plan to hold for a while, that is one thing. But if you are planning to make a quick buck flipping them and/or refinancing bases on these b/s appraisals, taking $$ out and running large deficiencies, that is another.

How about looking at 2-4 unit properties? May be more expensive but you spread out your vacancy risk some and those type of properties tend to sell more on cap rates or rent multiples than appraisals. Just a thought.

I am not as negative on the housing market as many here. But I am also in California and live in a highly desirable area (Silicon Valley) that is a large attraction for highly paid employees who in turn purchase homes.

lapdance said:

50 homes in 3 yrs= disaster. be careful. don't forget about insurance[property and home owners] if a roof starts leaking, do you have cash to fix it. so many problems can happen plus what if you can't rent them, can you pay the mortgages?

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You don't have to be renting them all at once. One house's rent can/will pick up the mortgage for another and so on. If he can just have residents in 65-70% of these homes he will still be ok.


Iceman, I say go for it. My overall goal personally is to have 10-15 homes being rented in the next 8-10 years. I think it is an excellent thing to be in and these homes will provide leverage if you want to get into something larger with a larger pay-off. I say go for it.

Kruser6 said:

You don't have to be renting them all at once. One house's rent can/will pick up the mortgage for another and so on. If he can just have residents in 65-70% of these homes he will still be ok.


Iceman, I say go for it. My overall goal personally is to have 10-15 homes being rented in the next 8-10 years. I think it is an excellent thing to be in and these homes will provide leverage if you want to get into something larger with a larger pay-off. I say go for it.

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I highly doubt 70% occupancy can carry 50 single family homes.

lapdance said:

50 homes in 3 yrs= disaster. be careful. don't forget about insurance[property and home owners] if a roof starts leaking, do you have cash to fix it. so many problems can happen plus what if you can't rent them, can you pay the mortgages?

Click to expand...

Just thru the 50 homes thing out there. No real number as I am only looking to buy when the oppurtunity is excellent. Yes I have extra money but my biggest fear (like anyones in this situation) is the vacancy potential.

Like I said this probably gives me the best chance for a great financial future but I know the most important thing is to buy at GREAT prices and I think it will take alot of the risk out.

I have studied the market in the area for over 2 years so I have a good feel what the "true market value" is. More or less am using appraisal values for discussion purposes.

If I were to simplify my previous post to one sentence it would be

don't think you are buying at a great price (or below FMV) simply b/c the appraisal says so.

Iceman said:

I have studied the market in the area for over 2 years so I have a good feel what the "true market value" is. More or less am using appraisal values for discussion purposes.

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Isn't the true value the price at which two willing parties are willing to buy and sell respectively? And, if a house sits on the market for X months at $151, wouldn't the "true market value" be less than that? I can't think you are the only person in the market.

I don't think these are bad investments, but they will be a timely investments.
I think you should always be buying when everyone else is selling and vice versa-this is not easy, but being contrarian never is.
With inflation going nowhere but up, there is a very good chance that the value of the houses will eventually go back up.

fhmesq44 said:

I highly doubt 70% occupancy can carry 50 single family homes.

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Well, there are too many unknowns to make that statement so I would question that as well.

However, I am sure that 80% could. Once again though, I have only been involved in flipping houses so I am not 100% on any extra costs that I am not sure about.

What is the insureance going to cost you?

Also, how much money is needed to get these houses in shape so that people actually want to rent them.

Another question, have you looked into any of the available government assistance programs which will insure you guarenteed rent payments?

fhmesq44 said:

If I were to simplify my previous post to one sentence it would be

don't think you are buying at a great price (or below FMV) simply b/c the appraisal says so.

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agree and I believe that cash flow is the most important thing. Having a decent amount of equity creates a biger safety net

The Falls said:

I don't think these are bad investments, but they will be a timely investments.
I think you should always be buying when everyone else is selling and vice versa-this is not easy, but being contrarian never is.
With inflation going nowhere but up, there is a very good chance that the value of the houses will eventually go back up.

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Exactly. Its only a matter of time. It might not be next week, but the time will come. Its as easy as basic economics.

Kruser6 said:

Well, there are too many unknowns to make that statement so I would question that as well.

However, I am sure that 80% could. Once again though, I have only been involved in flipping houses so I am not 100% on any extra costs that I am not sure about.

What is the insureance going to cost you?

Also, how much money is needed to get these houses in shape so that people actually want to rent them.

Another question, have you looked into any of the available government assistance programs which will insure you guarenteed rent payments?

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There are, but intuitively I don't even think 80% carries. I'm not sure 100% carries to be honest. 80% may carry apartment complexes, but single family houses often don't even carry themselves. You may pay $75k/door in an apartment complex where you would pay $150k door for single family homes.

Section 8 tenants are great. We have some in the mobile home park we own and the checks show up on the 1st of every month.

The Falls said:

I don't think these are bad investments, but they will be a timely investments.
I think you should always be buying when everyone else is selling and vice versa-this is not easy, but being contrarian never is.
With inflation going nowhere but up, there is a very good chance that the value of the houses will eventually go back up.

Click to expand...

exactly my thoughts. If you are looking to investment than this is the way to go (IMO) or bet the Pinny lean:lol: