If you were looking to sell of one of your best cash cows (single family house) and the house needed no immediate repairs or upgrades and even had a good long term tenant in it paying $600.00/month.

Lets assume a first time investor has approached you about buying this property since he would like to swap places with you. Is there enough information here for you to come up with an asking price for this house that consistently produces 25% returns after taxes, insurance and maintenance?

David,

In many of my Class C hoods, there are plenty of people who would love to buy my house as their 1st time home purchase. However, there is one big problem, they can't qualify for a mortgage. And everyone else who can qualify for a mortgage, does not want to live in this Class C neighborhood. It is a Catch-22 thing. So, if I want to get 'all cash at closing', I am stuck with investors only here.

Normally, if I was in ordinary times, and a newcomer wanted one of my best cash cows, I would say it's not for sale--- but here's a place out of my renovation queue you can practice on. And suppose I bought it for $2k, and I would ask $10. Or if I bought it for $4k, I would start by asking $20. Either house, when fully renovated, would be theoretically worth $50k - $100k to an owner-occupant, but it would require effort and materials to get there.

If I was in a different situation, and either my age or my health made it so that I was trying to exit the biz, or at least transition into something more turnkey, or perhaps cash out--- I would look at what the tax penalties were before I sold anything. And then I'd be more likely to sell places as they came vacant (if I had time) or my most troublesome places (if I was in a rush). "They're good houses, but seem to attract people whose lives are in turmoil. With better screening, you can probably avoid the problems I was running into." or "This house is good, but weird things keep happening. I've replaced the drains, the faucets, rerun the gaslines, replaced the CHA, replaced the ceilings, rerun the sewer line... I think I've run out of weird things to go wrong. Hahaha."

If you are dealing with a new investor, would ever take a sheet of paper and a calculator and say "Allow me to show you (on paper here) what a 25% return actually means,... which I hope will help justify my asking price of $XXX.00 ?

Income potential isn't the typical way to value an investment SFH. For MF, yes, it's income based (CAP RATE).

SFHs prices are based on one of two things: comps or emotion. If the Seller is patient and knows the market, it will be based on comps. If Seller is ignorant of the market and/or wants it sold yesterday, it will be based on emotion...and you'll get a better deal.

Are you thinking of cutting back, Roy?

For a good house in excellent repair that needs no work done on it, I would ask full market price and then let the buyer make a counter offer.

For market price in your area, I haven't a clue because I don't know your mrket.

If there is no agent involved, you could also ask full market minus the real estate commission to make it a better deal for the buyer.

As an investment, for us, we really don't care who is buying. I'm not selling to owner occupant for any less than the property is worth using GRM (gross rent multiplier) Everyone I've sold too has use that formula.

rent 600.00 X 12 months is 7200.00 time 125 is 90,000. split atty fee 50/50 need 5% down and 1K on contract signing. Close in 30 days.

Re: justification, do I want to sell? Or am I only thinking about selling because a new investor has made an unsolicited offer on a specific house, and I'm open to the idea, but not 100% on board with selling except under ideal circumstances?

If the former, I'll take the time to point out the value of the house and educate them. "This is what I would lose if I sold the house, so this is why your price would have to be darn good for me to consider it. This is what it could theoretically do for you, if you handled it right, so that's why it would be valuable."

Hard to tell in your market but if you told me you were getting $600 a month and I thought that was market rate, I'd be thinking of paying $60K for it in my market.

I have 3 properties on the west side of my town. Knowing what I know now (after 13 years that is), I should have only bought properties on the East and North side of my city where all of the new development is moving towards. The west side of my city is moving backward, not forward. Last June, I listed one of these 3 houses on the MLS for $44,500. I had one cash offer at $38,000 and I accepted it. A newbie investor bought it.

Now, without any MLS listing, another investor has approached me telling me he has saved up $25K and wants to know if I have anything in my inventory that I would sell for $25K. I told him maybe and I will get back with you.

Ah, gotcha.

Could you replace it for something just as good, in just as good condition, but in a better place, at $25,000?

If not, then definitely not.

If so, then you're breaking even. In some cases, breaking even is an awesome achievement! And other times, you don't think twice about it.

Generally, if I'm selling something that doesn't have any other negatives attached to it, I want to be able to gain at least two of what I'm losing for the price of what it is I'm letting go of. But I'm in growth mode; you're further along in your trajectory than I am. And the neighborhood itself is on a bad trajectory, so perhaps it's better to let go of it now, rather than 10-20 years from now, if you suspect it won't appeal to desirable tenants in the future.

Roy, since your homes are in class C hoods a LL is only gonna buy cash flow and no appreciation. Here is a couple of examples of recent sales for me in C hoods. Rent 575.00 sold for 28,000 and it came with a paying tenant. I had it for 9 years and paid 10K for it. Sold another one for 26K rents for 625.00. Owned it for about 20 plus years. Paid 20K for it. I tried the market before at what should be retail prices with no luck.

Deanna,

Yes, I could buy another house on the East side for the same amount of money,...$5-10K for the house and $10-15K for rehab. I have done this on 3 other occasions when I needed to get out of crummy neighborhoods. And it is crummy neighbors that create crummy neighborhoods.

Roy after reading that last post-- WHAT THE HELL YA WAITING ON!

No one is more deserving of new SUV-- with all the bells and whistles tooo.

As I recall, you are in your 60's. Do you have an exit plan?

If not, is this a person that you could take under your wing and possibly groom to take over your business in 10 years and buy you out?

My properties were bought in the past 10 years.

My low end C- properties are only worth 45 times rent even in today's market. I bought these for an average of $20,000 each and they rent for $800/month. These houses are 100 years old and attract low end tenants. These houses are selling for $35,000 - $40,000 in today's market (for a good rent quality property).

The C properties are selling for 70 times rent. The rents average $800/month. The houses are around 75 years old.

My C+ properties are selling for 100 times rent. The rents average $900/month and the houses are 50 - 60 years old. The average purchase price for these houses was $45,000 and they are selling for $90,000 today.

The B property would sell for 150 times rent. I bought it for $62,000, it rents for $1,100/month and it would sell for $150,000 today.

Purchase price should not enter into sales price-- maybe you brought right-- maybe not. current value.

Ah! Then the real question is, "Is it okay to reward myself?" And then the answer is-- "You've worked hard for it!"

Profit isn't always monetary. :)

You can't take equity with you. Turn it into something that does good for you, whether it's mentally, or emotionally, or spiritually, or whatever.

Deanna,

MMIT (VA) - I have only sold a few of my C- properties so far and they generally sell for around 50 times rent. I sold those just to get out of those crappy neighborhoods. I have 2 more houses on the West side that I would like to cut loose of.

MYOB,

MYOB,

How long does it normally take for your rental houses to return their total cost? More than 36 months?