Rental Property Purchased Above Appraised Value - Posted by Ray

Posted by David on September 11, 2001 at 22:08:32:

What are the comparables? Why do you think it will appraise for less? Why don’t you try to purchase it for closer to the appraised value, or lower?

Rental Property Purchased Above Appraised Value - Posted by Ray

Posted by Ray on September 11, 2001 at 21:17:02:

I’m a newcomer and I have a question. If a rental property is appraised at $15,000 to $20,000 below the seller’s price (it’s a duplex) but monthy cash flow could amount to $300 to $400 a month, is it a worthwhile buy? The bank would probably allow me to finance 70-80% of the appraised value and I could use a line of credit for the balance and still have a flow. FYI - the asking price is $65,000 but I don’t think the property will appraise for that amount. What do the experts think?

You earn your money when you buy, … - Posted by John J

Posted by John J on September 13, 2001 at 09:12:46:

…not when you sell.
I buy my properties for no more than 70% of what I think the fair market value is. I have always been able to sell them at a profit, even if I sell them somewhat below FMV for a quick sale. If you buy the property for much more than what it is worth, you’ll have to find a greater fool to sell it to or take a loss.

Buy Rental Property BELOW Appraised Value - Posted by David Krulac

Posted by David Krulac on September 12, 2001 at 19:31:38:

Ray,
Something is not right here. Sounds fishy to me. Who told you the rents, who told you the appraisal would be low? Get the exact information on rents, expenses, and find the real comps for the property. And then don’t pay more than appraised value and don’t buy any negative cash flow.

Re: Property Purchased Above Appraised Value - Posted by Ronald * Starr

Posted by Ronald * Starr on September 12, 2001 at 14:01:19:

Ray—

I could understand paying $275K or $280K for a $260K property if it were no down payment, positive cash flow, and you expected appreciation in a couple of years to increase the value to more than what you paid. That I could accept as a reasonable deal, given the assumptions.

But, $65K for a property worth $45K or $50K? No, I don’t like that. At 4% or 5% a year appreciation, it would take about 6 or 7 years to get to your purchase price. This makes no sense to me.

Why would you consider paying so much more than market value for a property? Can’t you just look around and find some at market value that will give you similar cashflow? Maybe you could even find some deals at below market value?

I vote no, unless you tell me something else that you haven’t included here. But I don’t know what that would be.

Good InvestingRon Starr******

Rental Property Purchased Above Appraised Value - Posted by Tom – IN

Posted by Tom – IN on September 12, 2001 at 08:20:24:

What makes you think that it would cash flow so high? Has the seller told you what it might rent for? Or is this what it’s rented for now? Have you talked to the tenants about what they’re actually paying? One good dodge for a seller is to move in a couple of tenants who have paid no deposit, and give them a couple of months rent free down the road somewhere, in exchange for a higher rent now. So you come along and ask them how much rent they pay, and they give you the raw figure, but if you don’t ask the right questions, you don’t find out about the other side, that they get December and January rent free. keep in mind also that paying too much is going to run your taxes and insurance up also.
But the basic concept here is that we want to buy from a morivated seller. This guy is NOT a motivated seller.

Re: Property Purchased Above Appraised Value - Posted by Stu Silver, trainer

Posted by Stu Silver, trainer on September 12, 2001 at 06:46:58:

Hello Ray,

First, welcome to real estate investing.

Second, you should be looking for positive cash flow when you are into a property for no-money-down of about $100/mo per unit, again, if you have no cash invested. For a duplex that would indicate $200 per month positive.

How much does this property cash flow after both mortgages, the first and the credit line addition?

Third, what if you have to sell this property for some reason? If it appraises for $15,000- 20,000 less than you paid, guess who is going to come bleeding to closing?

I would calculate the cash flow after mortgages, and if it is $100/unit per month, then I would, at the very least, ask the seller to lower the price to appraised value.

Hope this helped …

Stu Silver, CCIM
Lead Trainer at Russ Whitney’s Millionaire U