Thread: Question about real estate?

LOL, there are way too many factors (that you didnt mention) to even come close to giving you accurate advice. You are assuming you could make a profit, with an older home you could potentially need to invest a pretty good amount of money (if you plan to make any type of renovations to make it more marketable). Good luck.

No one should LOL at a question like that. You're thinking the right way. You should always get an idea of what you would do with the property if you were to own it. If you were buying it for rental income, then the $60,000 might be too much because a rental property's value is determined by what it makes. With the $700 rent, you wouldn't have enough cash flow to handle the loan payments along with repairs, maintenance, and other operating expenses.
If the market was stable or improving in that area and the current tenants didn't have a lease, you might be able to renovate the property and then sell it for a profit. The trick would be getting a good local real estate agent to give you what the value of the property would be after needed renovations have been completed. A good rule of thumb is to take 75% of what the value will be after renovations, subtract out the renovation costs, and that would be your offer. Let's say the after renovation value would be $80,000
Example: $80,000 x 75% = $60,000
$60,000 - $10,000 (reno cost) = $50,000 should be your offer. Make the contract subject to acceptable engineer and contractor inspections to protect yourself.

Originally Posted by tanmaysnv

I am 19 and looking to get started in real estate investment. I was wondering if it is a good idea to pay 60k for an older looking house which looks like from the road. The house has tenants who pay 700$ a month plus utilities. I would clean up the yard, paint it up, and make it look nicer, then sell it again. Is this a good idea and how much money could i typically make from an investment like this?

Great job at 19 years old even caring about real estate investing. Some investors will not touch a home unless they pocket 50K however I like to look at it like, if you make 3K a month on a regular job and you can make 6K on a sale that takes you 30 days then you doubled your money.

The key factor is you're interested in real estate, bravo at age 19. But you really need to know what you're going to do with it before you spend time evaluating the details.
As in my previous note, you should be looking at what properties of that type are going for in the local market, in renovated condition. Purchasing a property is an investment and the important rule is, it's not what you put in, it's what you get out that makes an investment good or bad. With the right details I could probably show you how to buy it without using your own money, but if you pay too much for it, none of the techniques I could help you with would create any profit.
Do a little research, if it's still available, finding out from a local real estate professional what it would be worth were it in great condition. Post some of the numbers and I'm sure everyone could help you make a more informed decision. Keep looking for deals out there, as there are quite a few in this market!

If the market was stable or improving in that area and the current tenants didn't have a lease, you might be able to renovate the property and then sell it for a profit. The trick would be getting a good local real estate agent to give you what the value of the property would be after needed renovations have been completed. A good rule of thumb is to take 75% of what the value will be after renovations, subtract out the renovation costs, and that would be your offer. Let's say the after renovation value would be $80,000
Example: $80,000 x 75% = $60,000

Your reply was basically what I had posted earlier but you left out a part. In the example you would need to take 75% of the ARV (After Rehab Value) and then subtract out the rehab costs. $80,000 x 75% = $60,000 then $60,000 - $10,000 rehab = $50,000 purchase price.
The reason for this is being able to fall back on Hard Money if necessary which would look at a minimum of 75% ARV

It's better to buy at once a good house, then to repair it by yourself. It's better to pay more and to buy a decent property that looks good.

A lot of things affect what "numbers" you'll be dealing with, but when it comes down to it, it's all numbers.
When you are investing in smaller properties for profit, there are a number of things to consider. How is the area doing economically, how's the supply and demand balance for this type of property, how does the property sit and fit in with the area, how's the functional balance (amount of space for normal living, sleeping, closets, baths, etc), environmental concerns like lead based paint, asbestos, molds, etc., possible structural problems, I could go on and on. Barring any large negative aspects, you have to decide on whether you will hold the property for cash flow or sell the property for profit.
It is not difficult to determine the true market value of any real estate either in, "as is" or "improved" condition if you use good local brokers for advice and some common sense when looking at their information and numbers. A property in a depressed area can be a great investment if you can buy it at a low enough price and take everything I've said into consideration. It's all in the numbers.

Originally Posted by Dave Alexander

No one should LOL at a question like that. You're thinking the right way. You should always get an idea of what you would do with the property if you were to own it. If you were buying it for rental income, then the $60,000 might be too much because a rental property's value is determined by what it makes. With the $700 rent, you wouldn't have enough cash flow to handle the loan payments along with repairs, maintenance, and other operating expenses.
If the market was stable or improving in that area and the current tenants didn't have a lease, you might be able to renovate the property and then sell it for a profit. The trick would be getting a good local real estate agent to give you what the value of the property would be after needed renovations have been completed. A good rule of thumb is to take 75% of what the value will be after renovations, subtract out the renovation costs, and that would be your offer. Let's say the after renovation value would be $80,000
Example: $80,000 x 75% = $60,000
$60,000 - $10,000 (reno cost) = $50,000 should be your offer. Make the contract subject to acceptable engineer and contractor inspections to protect yourself.

Great advice Dave! One thing to add is you need to know what your exit strategy will be or your purpose for buying the home. For example are you buying just to hold and make cash flow or are you buying to flip. Either way, make sure you educate yourself. There are a ton of books out there you can read that will help to keep you from making simple mistakes. And don't worry, you will stay make mistakes, but you will learn from them.