Posts Tagged ‘investment properties’

Don’t buy a house with a glaring defect

Sunday, January 30th, 2011

Opening up the old mailbag again, I am printing my response to a recent fixer upper email question that I received.

Hello Terry,

I’m writing you with a somewhat specific question.

I am looking at a house at xxxx Star St. in Duluth, MN. It’s a vacant house (so many are nowdays) and the listing price 39k. Repairs look to be 10.9k plus a fee of 1,100 for re-registering it as occupied.

I walked through the house, visually it’s fine. I like the house, don’t get me wrong. New windows, carpets, paint, etc. But the repairs are mostly plumbing etc. Should I put in my bid for 39k EVEN or throw it down for 29k?

It’s in a fairly low crime area, but across the street is a halfway house for prisoners just getting out into the world…Prior values in the 200k for this area before the Great Collapse….

Thank you for your time,

Malcom

Dear Malcom,

What I see is a red flag that should influence your decision.

The location of the house across the street from a halfway house is going to considerably limit what you can do with the house. Regardless of whether you are going to turn it into a rental or flip it, you have a very limited pool of potential tenants or purchasers. In my opinion, most people would not want to live there.

Consider, if you had a tenant who had a choice to rent your property, or one in another neighborhood nearby that did not have a half-way house across the street. Which would they choose?

Granted, the purchase price is low. However, in my opinion, it’s better to spend a little more money for a house that doesn’t have a glaring defect.

There are a lot of properties on the market right now, and many at bargain basement prices. If I were you, I would consider looking around for another one.

Donald Trump said, “Sometimes your best investments are the ones you don’t make.”

Best of luck in your business.

Best regards,

Terry Sprouse

Should I refinance my house to buy a rental house?

Tuesday, June 22nd, 2010

I recently received the following email from a student who is taking my free 7-week course.

It addresses the very topical issue of refinancing your existing  home, and taking out equity to purchase a rental property. Below is the question and my response.

From: Janet
Sent: Friday, June 18, 2010 12:12 PM
To: ‘Terry Sprouse
Subject: Re:7-Week Fixer-Upper/Rental House Course: Lesson 7

How does the refinancing work in this underwater market? i just bought a house in Jan, do i have to wait 10 years to do this? i am 50 now, should i wait till i am 60 to start doing this? sincerely, Janet

Hi Janet,

That’s a good question.

Everything depends on how long it takes to generate some equity in your house. And, of course, that depends on the situation that the market is in. Right now, as I’m sure you know, housing values are not going up very quickly. In fact, in many areas of the country, housing prices are going down.

So, in your case, all you can do is wait and see what happens. If the housing market improves again, you may be able to refinance sooner rather than later. But, until the equity in your house increases, you would not be able to refinance and buy an investment house.

Best regards,

Terry

———

Usually you need to live in a house several years before you have enough equity to refinance and purchase another house. I lived in my house ten years before I took out the equity to buy my first fixer-upper rental house.

Another possibility it to find a partner with more equity in their house, or who has some cash, and to jointly buy an investment property.

***Warning! Shameless Book Promo Coming Up***

If you are new to investing, make sure you have a good inspection done of your investment property, and follow the safe steps for investing, as I discuss in my new, easy-to-follow guide for beginning investors, “Never Sell Your Home! How to Turn Your Home into a Rental House.”

Buying an investment rental house with the equity from your home is one of the safest and easiest ways to start a reliable new income stream.  But, timing and planning are everything.

I wish I had remembered that before I spilled spot remover on my dog, and he disappeared.

But in real estate investing, one of the most basic principals, like the law of gravity,  is that you must  have some equity in your house before you can take it out and use it.

You can’t rush things, or you’ll wind up with your dreams broken faster than a movie star wannabe, just off the bus from Kansas.

Five Questions to Identify Motivated Sellers

Friday, April 18th, 2008

,
Thinking about buying an investment property?

Check out Real Estate Investing – The 5 Magic Questions at ezinearticles.com, by Robert Rentalman (yes, Rentalman).

The MARLA formula consists of 5 magic questions that will help you quickly weed out the motivated sellers from the rest of the pack. MARLA is an acronym for Motivation, ARV (After Repair Value), Repairs, Loan balance, Asking price. For more details on the 5 magic questions, take the link above.

Info on Terry’s Book

Add to Technorati Favorites

Subscribe in a reader

Share this: del.icio.us | Digg | Ma.gnolia | Reddit | Stumble Upon |