Guts Or Cold Heart??
I would like to tell me what is your openion on this. Do you use your inner feelings or just good calulations when you buy properties?
I am very interested in this property, it's 4-plex, CBS-construction, spanish style, very appealing. Consists of 4 big (1000 sqfeet 2-bedrooms), all rented, rent is below market because of the old owner. It brings 2900 per month, should be at least 3500. Landlording expenses ( utilities, insurance, lawn, license, taxes) are about 900.
I'ts offered for 399,000, but I feel they will sell for around 350. So I was thinking to give 40000 downpayment and finance rest for about 2400 per month.
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Income: 2900 -3500
Expenses: 3300.
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I barely cover my expenses. But this fourplex is so beautiful. And somehow I just love it. It's in North Miami, about 3 miles from ocean (+), city has no immidiate plans for any capital improvements at the moment (-). Neighborhood is very nice, I don't think I have much problems with rent. Also the realtor said that I can sell it later individually.
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QUESTION: Should I just forget about this, because on calculation point of view it makes no sense? Or I should go for it, because I just like it so much?
I wouldn't want to purchase a property that didn't cash flow immediately. You should offer no more than $333,333 for the property as that would be break even with 10% down. You can probably then raise the rents $30-35 per year until it is up to market value. If you get new tenants you can try to raise it faster.
Im new at this... but everyone has told me, DONT FALL IN LOVE WITH A PROPERTY, ITS JUST A PIECE OF INVENTORY. Emotions=bad investment decisions.
Now if you plan to live in it, then u want to be in love with it, because its your house and u want to live somewhere that makes you happy.
my 2cents
Put the property through the Proforma-nator tool in the Tools area of MyTCI.
That should shed some light on the property.
Whenever you catch yourself going "I just love it" you are in a BIG danger zone, ESPECIALLY if the property does not clearly cash flow.
Take 5 giant steps back, and focus ONLY on the numbers. That property should be putting postiive cash flow in your pocket, OR you may want to lease option it, so you can charge slightly higher than market rents and get a positive cash flow, an up front option payment, and back end appreciation profits.
Best of luck, Dave
Now now, do not take all this advise too seriously. Most of it is from people who want to move into your area.
I think you are a little too close, but I have gone over the formula approaches on occasion.
Forexample. You buy the place and then you call on your tenants one by one and ask them if they are tired of paying rent and going nowheres. Now is the moment in their life to move onward and upward to the exhaulted status of Owner.
You trans the property into a Corp ownership and then sell each of them an undivided one quarter which entitles them to help maintain the structure etc. etc. You may take a little cash from each of them as a downpayment. Or if they are without funds you might cosign a small loan at their favorite bank to obtain a downpayment. then they buy their share and away they go. Each contributes to the taxes and the mortgage payments and the nice man who comes to take care of the lawn.
You are a good person. You have a profit and you are happy. If you short out you can always come back with profits in the form of a second mortgage whatever. Go structure, I only turn the light on.
Enjoy the weather Lucius
It sounds like a terrible business decision. You are losing money from the first day and will have to rais rents significantly, and even with those raised rents you will be losing money.
Walk away, it's JUST A PROPERTY, not something you would want to marry.
[addsig]
Make the offer based on what works for you - not based on the asking price or what you think they will accept.
Brenda
You use both. However, math after all has to make sense. Just wonder why wouldn't you consider one of the ARM mortgages or NegAm's such as COSI or COFI so to get a better positive cash flow in the next several years? How old is the building?
On old buildings you may have problems such as galvanized pipes leakage leading to mold, mold to seek tenants and seek tenants to vacancy that may cost you a bundle all away to foreclosure. This is now the worst case scenario that doesn't happened often but it does sometime. If you can really increase the rents without major investment, down the line your property value might just increase as well, allowing you some needed breathing space. Be careful!
If you have a bunch of extra money and you like it, want the pride of ownership, then go ahead and buy it...but think of it as a luxury item (like a boat, nice house, piece of expensive art, antiques, etc) and not an investment property. (Keep in mind, you don't have to collect rents from a boat or a picture)
It does not make sense to buy it as an investment property or a business decision. That said, neither does a nice ski boat...but lots of business men have them.
In the long run it will make you money. Probably not as much as others (ie, high opportunity cost), but it will appreciate, cash flow eventually, and give you some tax shelter.
Lots of things in life that make us happy aren't sound financial decisions (having children, vacations, etc) but we all enjoy them. Just realize that this is one of those items for you and figure out if you want it that badly.
You can also wait until you find a propety that you love just as much AND the numbers make sense. I don't think this is your soulmate of properties!
....One other thought....could you find out who built it, buy land, and have them build you one just like it for less money where the numbers did make sense???[ Edited by hibby76 on Date 03/07/2004 ]