What Would You Do? - Posted by Deanna

Posted by Deanna on July 25, 2001 at 08:26:09:

Hi Bill

Thanks for taking the time to do all that math! Yes I’m going to work with the numbers and see what I come up with. The home is offered by the USDA, I don’t know if they usually expect their asking price, but I’ll try. I’ll let you know what happens…

What Would You Do? - Posted by Deanna

Posted by Deanna on July 24, 2001 at 13:50:44:

Hi all,

Yes I’m an annoying newbie, although my husband and I have lots of experience property management (thats how we lived for free for several years). I’ve been enjoying this site greatly. I was trying to decide which course to purchase and then I found what I think is a good deal on a house. I don’t want to jump on it before I know what I’m doing, yet I don’t want to lose it either.

Here’s the situation:

The house is government owned, was hard to find, and even the neighbors didn’t know its up for sale.

The area isn’t bad… its a small town in New England, but its kind of a hick town.

The house is a 3 bedroom ranch built in 1983, outside perfect, inside needs paint, carpet, kitchen floor and major appliances. Some door frames need repair… everything else in great condition.

We live in a mobile home and are planning to build our house next year (we bought this place for the land). We own the house outright and have no monthly payments. Our income is 65,000 a year.

I believe buying then selling this house will get us into the real estate business and give us a nice hunk of change to put in our bank account. My husband is afraid it won’t sell because of the low income area (average income is 33,000 year)

The price of this home is 40,000. Homes sold by real estate agents in the area go for 60,000 to 140,000. I only saw one ranch for 80,000.

The house is a funny location… quiet street, but on one side you see two icky cityish looking houses, on the other side you see a beautiful field and a nicely landscaped church. Its so hard to judge.

I’ve helped buy properties for other people and think I have a good eye… but its a lot more stressful doing this on our own.

Should I wait until I’m more educated, or take a risk? How much $ should I offer? Husband says there’s always deals out there and we should wait. I like it because of the min. amount of work to restore it. He’s always been the conserative one, and I’m the risk taker… its paid off so far… What would you all do?

Re: What Would You Do? - Posted by BillW

Posted by BillW on July 24, 2001 at 23:12:12:

Go for it.

  1. If you’re making 65K, you probably have the cash flow to carry it.
  2. 40K is CHEAP, especially if others are selling for 60-140K. Check solds for houses like this one.
  3. If the average worker in the area makes 33K/yr., then , if you figure a 25 percent ratio for housing payment, that’s 8250/yr or 687.50 per month. At 7 percent interest, that would equate to a loan of about 103K or possibly a little lower if you consider taxes and insurance. Heck, even if the loan was only 80K, that’s still a good profit.
  4. People in the area can’t afford it. (If so, then how are the real estate people selling the other homes for 60-140K, and to who?)
  5. Fear of the unknown. People who never take risks, get no reward. Your risk sounds low. You seem to have enough income. The house seems priced well.
  6. Risk adverse. Try using a partner?

To sum it up, profit happens when you can see an opportunity and are willing to act on it.
Life is always going to have risks. Risks can be managed or minimized. There is a gigantic amount of help available right here. If there is some aspect of the deal that is holding you back, just ask questions.
The real question is are you going to sit on the sidelines or go for the touchdown.
As to how much to offer, well, the govt. sets their asking price. If it’s a VA, HUD or FHA repo they usually hope to get their asking price. Just analyze the deal carefully, especially the SOLD properties in the area that are similiar or close to it and work your numbers to see if it will fit. Once you know what you can sell for and what it will cost to buy, fix, hold and resell, then put in your profit and that will give you a maximum you can pay. If their asking price is below that number, well, then you might take a chance.
good luck,