Neighbours home on Market for 229 day's.How much do I offer them?

[Hooch]

The asking price is $135 k after being on the market for 243 days to date....My ARV is what I figured based on the 5 most recently sold homes around it ,the past 6 months....am I not calculating this the right way?....Is this not the way to do it?....Also plese consider the other twins across the street @ $163k,built in 2001....the house am looking @ is circa 1860....am i missing something?

I am just trying to figure out if you are calculating the ARV correctly. I don't know how it would be worth 220K when fixed up and the asking price is 135K and all it needs is a little paint. Also the ones across the street are valued at 163K. Why is your Circa 1860 worth so much more fixed up than the ones across the street or the one next door?

Is your market booming unlike the rest of the country? There is something fishy here. Either I am not understanding something correctly or you are determining your ARV incorrectly.

[Hooch]

Are the recent sales you are basing your figures on all comparable to this house you plan to put an offer on? Also twins? Within a few blocks?

[MamaKaranja]

The comps are from homes close to circa 1830,most of them are SR ,with large sq ft,....am sure am not calculating the ARV correctly...

[Hooch]

You need to get the value of that house based on other houses that are within the same area, are also twin houses and have sold recently but definitely not during the bubble. Something that is comparable in square feet would be good.

Check all of the property closely around that house. I go to the local GIS and look at every single property around it, finding the most recent sales. Be very conservative with your ARV as it needs to be accurate. This is the part that you spend some time with ensuring you are correct.

Then come back and report what you have found and we will tell you what to offer. I am buying at 50% of the ARV in this market. I see lots of wholesalers going for 65%. The thing is I also have lots of wholesalers contact me locally with their 65% deals that they can't sell.

You will need to put in many offers on many properties before you get a deal.

[MamaKaranja]

Okay..this is what I found out..most recently sold comps /similar sq ft and not during the bubble....ARV is $161 k.

Then the figures would change to:

MOA : $161K X 50%- REPAIR COST-FEE = $?
           $81,000.00- ( $11,408 + $ 16K) = $?
           $81,000.00- $ 27,408k= $53,592.

This is not an REO....been on the market  for 243 days....it would be a miracle to put under contract....or not?

[Hooch]

You are now figuring this correctly.

The key problem here is the fact that it is on MLS. Read this thread to understand where the real deals are and why they aren't on MLS. Especially for a wholesaler.
http://www.reiclub.com/forums/index.php/topic,43179.0.html

That's OK though because you need practice working up the numbers on deals. You need to run the numbers on many properties so you learn to do this quickly and accurately. I learned on MLS and then jumped in the game where the deals really are for my first property. After a while you will get a good feel for it and will know by instinct about how much a house is worth in various areas that you concentrate on.

When I make an offer to someone I justify the cost by overestimated repairs needed. As if you would be using a licensed contractor to do the work where most investors would use a couple of jacklegs that would charge 1/3rd of the price.

I go through the house with the homeowner and write down every single little thing I find making sure that they realize that I noticed it. They often need to be knocked off their high horse and nicely smacked back into reality.

I use various techniques depending on the house. Lets say that it is a vacant house that has broken windows, and extensive water damage from the holes in the roof, peeling paint inside etc. What's a sheet of drywall cost? Not much. Cheap and easy repairs. So I act like a bomb must have gone off in that house and that this house is a little over my head and I look for these types of properties. My plans are to sink 20K into it on a rehab, in reality it is exactly what I look for. I tell them that the house likely needs to be torn down and ask them what the land is worth. Ok, so the land is worth 15K and it is going to cost me 10K to knock it down and prepare it so another house can be built. So it's value is 5K. I then give them the 5K offer.

There is uncomfortable silence and they say that they bought the house to rehab it 10 years ago and paid 15K and think it is worth 20. I ask them what they have done to it to increase the value. Well, they respond that they cut a few trees down and gutted a couple of rooms. I explain to them that gutting a room makes it less valuable. Now whoever buys it will have to pay all of that money to fix it. Most investors just cut out the damaged area only and repair it. And the house has been deteriorating since. I counter offer 10K and tell them that's all I can do. I tell them I am now 5K in the hole and I am in this business to make money, not loose it. I will now have to come down hard on my guys that help me rehab and make them charge me less if I can to recoup this lost money. I basically act like a real tight a** with my money and that they are the ones pushing me into the corner. All I'm trying to do is buy the house at a fair price.

Maybe you are talking to the executor or executee of an estate. The relative died and all of the family members live out of state. They don't have any emotional ties to the house and don't know it's value. You tell them how the house has deteriorated (they usually are as the elderly are unable to take care of them). Go through a little story. Possibly find some houses on GIS around it that could have sold years ago for a low price and tell them that one a couple of houses down last sold for 25K. The one up the road sold for $28K (in 1998). Yes, they could have been bombed out when they sold for that price but that doesn't matter. Who cares what the year was. That's not the point in this particular situation. Maybe you think the ARV is 75K and you want to pay 50% of that and you have $2,500 in repairs and $5,000 for your pocket. So you tell them 25K and you have a little breathing room to work up to the 30K you will pay.

First things first though. You need to build your list of investors that are presently buying property. You will get this list from emailing those who advertise apartments for rent on Craigslist, going to your local REIA meeting, meeting them on the courthouse steps when they are trying to buy a foreclosure, etc. Talk to each one of them, get the name, email address and phone. And ask them what they want. What are their buying criteria. Then you go and find houses for them. Amateurs find a house first and then a buyer. If you buy at 50% of ARV you will likely be able to find an investor to buy it but it may take a little time. Or you could buy property that you already know they want, perfectly fitting their buying criteria, put your contract on it and close on it right away.

[MamaKaranja]

Thank you so very much.

[MamaKaranja]

Hooch,

The fear of rejection is one if the things newbies struggle with....so ,we tend to reverse the protocol for success...or ,we opt for things like ListSource.com....what has your experience been with lead websites....should these only be supplimentary in addition to ,networking with our local cold calls ?

[MamaKaranja]

Hooch,

What is GIS ?

[Hooch]

After you put in a few offers you won't care about rejection anymore. I could care less if they don't like my price. I always give a fair investors price for the house and start a little lower than that because they will always want to negotiate.

Remember, a fair investors price for the house is low. You are in investor and you are doing this to make money, not loose it. Honestly think about it. Who cares if they don't like your offer???  If you can't work an agreement with them by the end than help them out. Give them some suggestions of getting rid of it for what they want. Tell them to put it on the market for what they think it is worth. Put it on there for $20,000. Subtract 20% because houses on the market today are selling 20% or more below their value. (make this number up to whatever you want it to be). You now have $16,000. Now subtract the $2,000 minimum commission that the realtors are going to require to split on a house with this low of a value. Now you have $14,000. Wait for a year or more to sell it like everyone else does. And you said you need money now? I am not even sure that you could convince someone to buy that house for $16,000 in the first place. It is going to have to be torn down or the person will have to spend $60,000 to repair it. $60,000 plus $16,000 equals $76,000 and no house around here is selling for that much fixed up.

It would have to be an investor that would buy this house due to the extreme amount of cash that will have to be put into it. I am offering you a very fair offer. $5,000 above what I wanted to offer! Code enforcement has been cracking down on houses like this and plan to in the near future start lawsuits. My offer stands. I can give you no more than 24hrs to either sell it to me or try to find someone else that has the cash to put into. I have other people waiting on offers to me and can't keep them waiting too long.

Now that's a little extension on the conversation on the low ball offer house. That is playing hardball with them. Your job as an investor is to play hardball. If you don't you will not succeed, making very little if anything on houses you buy.

After you have developed a few techniques on various situations and price ranges of houses it will be a cake walk. MOST people will not like your offer so you will have to get over this. It is your job to smack them off their high horse and bring them back to reality. This is what your house is worth to an investor. This is as much as any investor would ever pay for this house. We all buy with virtually the same buying criteria. No one would buy this house unless they were an investor due to the amount of repairs needed.

Then tell them that if they think they can repair it for less. Please do so and you will buy it from them. (Remember, they have no cash and they are broke). Not many people have 25-30K sitting around. Say if you think that you could fix it for 25K and they want 20K as is than it will be worth 45K and you will buy it at that. No worries, they won't take you up on the offer. They don't have the money to fix it. Even if they did take you up on the offer, if you don't think it's worth it you don't HAVE to buy it.

So ditch the fear of rejection because you will get rejected on 99 out of 100 offers you give.

I don't use lists. I make my own. If I am looking for vacant derelict structures I drive around the low income investment area and look for houses that have boarded up windows or appear to be empty. I write down the address and go to the Roanoke VA GIS and get who owns the house. I then copy down the address their taxes get sent to or I do a search on their name and call them telling them that I want to buy their house and when can I meet them down there to look at it.

GIS is Geographic Interface System. Many local governments have one of these online. Some you have to go down to the courthouse and get the info. 

Here is mine so you can see what I am talking about.
http://www.roanokeva.gov/85256A8D0062AF37/vwContentByKey/N264GSDL482JEASEN/$File/RoanokevaHomePage.html

Click the link GIS Real Estate.
Then click Search/Query
Then Click Street Name
Then type a random address like 401 Campbell

You will see the owner, their tax address, all of the info about the property, what they bought it for, etc. Everything you need to know to find them and make an offer.

Back to lists. If I wanted to contact frustrated landlords who are sick of tenants I may buy a list from the courthouse of recent evictions.

The courthouse can be used for all kinds of good lists that are relevant and accurate. Divorces, probate court for those family members who have to sell their dead relatives property, etc.

You look for problems and then you try to solve them. That is where the deals are.

[MamaKaranja]

Wow ,Hooch...I'm impressed by your wealth of knowledge...Okay I have 3 REO's to visit with my buyer's agent....I did an online search thro my local county office on the homes....smeof the info may/may not be relevant...so I need your guidance.

Are  these numbers inportant to us  or not....Taxable land  $$ ,taxable land $$ ,Taxable appr $$$.

I looked at the pix online..and determined a conservetive figre for repair cost....bottom line is that I am going in there with a figure to verbally offer/or fax them my offer ?(what document should I use ?) on each of them....this gives me upto 5 calender days to wire EMD to my title company,right?....
Also....I hear stuff about the need to be generous with the buyer's cut for their sservices to me ,the investor.How much should we be giving them ? Should I not take anything from themat all...am I entitled to some kinda cut from them?

[Hooch]

"""Okay I have 3 REO's to visit with my buyer's agent"""

I'm not sure I understand this buyers agent thing. Please explain.

"""Are  these numbers inportant to us  or not....Taxable land  $$ ,taxable land $$ ,Taxable appr $$$."""

You should see that there is a number that is the total Tax Value of the property. Tax values are not always correct so don't count on them but are often relatively close to the value of the property. If you subtracted the taxable land from the Tax Value you would have the value of the actual structure on the land. But you want the Tax Value which includes the entire value of that property in the beety little eyes of your local tax man.

On an REO I like to know what the bank paid for it when they ended up with it on the courthouse steps. You can get that by calling the trustee that sold the house but to know this you would have needed to previously be watching the legal notices in your local paper or on their internet classifieds. What the bank paid doesn't mean too much as your offer will not be based on this anyways but I just like to know it. I also look on the GIS to see what the previous owner paid for it.

"""I looked at the pix online..and determined a conservetive figre for repair cost...."""

You don't just look at online pictures to determine a repair cost. You must see it and look inside. The house could be completely gutted for all you know.

"""bottom line is that I am going in there with a figure to verbally offer/or fax them my offer ?"""

Tell me what this buyers agent you are talking about is. If they are a real estate agent they will be writing the offer. You just tell them what you will pay.

""".this gives me upto 5 calender days to wire EMD to my title company,right?...."""

Sorry, what does EMD stand for? My brain is a little fried right now.

"""Also....I hear stuff about the need to be generous with the buyer's cut for their sservices to me ,the investor."""

Are you telling me that you are buying this from a wholesaler that has some how put a contract on a bank owned REO? The place investors buy REO's from is directly from the REO agent. No need for the middle man and I don't think it is possible for a wholesaler to get in the middle of an REO. The banks don't allow it as far as I am aware.

You need to be dealing with real wholesalers that find property the exact same way that I previously mentioned. As far as how much to give them it is the difference between the investors buying criteria and what they get it for. I could care less what they make on a house as long as the deal closes at what I am willing to pay for it.

If you are buying REO's you need to deal directly with the REO agent, not a wholesaler.

[MamaKaranja]

Okay...the taxable info I got ,may actually be the same info you get from your GIS...your city /local gov GIS is impressive elaborate,should I enquire again or is the info I'm getting the correct one?....local county tax assessors website ,is where I got my taxable info from.

Given this new info about the taxable assessmnt, I have a etter graspof how to play my numbers...but yes, I must go in and look at the home inside prior to making a verbal offer.....now,has it been your experience that these REO agents will try to bargain to get you to a favorable amount ,to benefit their pockets too ?..eg ,asking $102k.....total taxable value $82k....I want to offer @ 50% - $42k ( using MAO formula), @65%- $80k.

If I give her a verbal offer on friday..then that gives me 5 days to wire the Earnest Money Downpayment  to my title company ,right?

EMD--Earnest Money Downpayment 

Sorry for helping in frying our brain.


I'm ot buying from a wholesaler....buyer's agent is infact th REO agent....so how does hse get compensated for her efforts for weeding out the REO's from the vast MLS ?

[Hooch]

"""Okay...the taxable info I got ,may actually be the same info you get from your GIS...your city /local gov GIS is impressive elaborate,should I enquire again or is the info I'm getting the correct one?....local county tax assessors website ,is where I got my taxable info from."""


You may want to confirm by a phone call to your tax assessor to make sure that the number you have is the total tax value. Not seeing it I couldn't tell you for sure.

"""has it been your experience that these REO agents will try to bargain to get you to a favorable amount ,to benefit their pockets too ?..eg ,asking $102k.....total taxable value $82k....I want to offer @ 50% - $42k ( using MAO formula), @65%- $80k."""

First of all, there may be some areas in the country that don't follow this but most areas property is selling at or below tax value just to the average home buyer. What they ask is completely irrelevant. I use that only for a basis of how crazy they are. If they are astronomical amounts above the tax value than I don't even bother because there is a high likelihood that they are off their rocker and there will be no deal, just wasted time. Wasted time is not a bad thing for a beginner though. You need to run the numbers on many deals so you can get your feet wet prior to actually buying one. When I see the tax value I would in my mind be saying, Asking $82, ARV is ??? $72 ??? MAO at 65% (if that is where you want to be) of what I found the ARV to be, so, $46,800 with NO repairs and most REO's HAVE repairs needed. You must find an accurate ARV of the property if you plan to flip it or wholesale it. If you plan to landlord it there are different formulas that come into play.

Will the REO agent push you? Yes. They are just real estate agents with a deal with some banks. They like commission. They like to "ACT" like everyone wants that property. It's a big game though. NEVER take the advice of a Realtor. You are an investor and investors know more than Realtors unless that Realtor is also an investor, which would mean that they are in their Realtor shoes and about to get you for everything they can.

Don't make hasty decisions based on this high pressure timeframe that they try to give you. Just bring your results back here and don't make a decision until you have enough of us confirming that you are making a good one. Then do the same thing for other investors once you have learned the ropes. Us investors are a tight group and like to help each other out.

"""If I give her a verbal offer on friday..then that gives me 5 days to wire the Earnest Money Downpayment  to my title company ,right?"""

I give $500 earnest money check to my REO and their company holds it and gives it back when the offer is rejected.

"""I'm ot buying from a wholesaler....buyer's agent is infact th REO agent....so how does hse get compensated for her efforts for weeding out the REO's from the vast MLS ?"""

If she is an REO agent and not just a Realtor than she is getting paid at the sale from the bank just like any other sale. The seller (which is the bank in this case) negotiates an interest rate with the Realtor (REO in this case) that they will pay her for the sale of the house. When it is sold she gets paid. She doesn't have any effort of weeding out anything as she is the one directly representing the bank, She is not representing you. If she is the REO of that property. Any Realtor can sell any REO. But the REO Agent is the one you always need to talk with.

The reason is this. REO's are sneaky little buggars. They have many tricks up their sleeves to attempt to get the full 5 or 6% that the bank is paying rather than having to split it between them and the Realtor that brought a buyer. You see, what they will often do is put that property up on Craigslist or something like that a week or two at first before they even list it on the MLS to see if they can find a buyer so they don't have to split the commission. This is ILLEGAL. They are required to put it straight up on MLS but they don't. Another little sneaky thing they do is lets say that you have a Realtor and you are trying to put an offer in on an REO. Your realtor submits your offer and the REO goes behind your back and tells someone else she is working directly with what your offer was so they can beat it by a couple hundred bucks and there again the sneaky buggar got their whole commission without splitting it. That is also Illegal. They know they won't get caught though so it is a pretty common thing across the US.

Your compensation to her is that whole 6% because you are dealing directly with her. If she is doing some Prior to MLS stuff with you and you know that she is ONLY talking to you about the deal than you may want to consider additional compensation. That would be one of those insider hookups and that is highly valuable as she is probably willing to submit some super lowball offer to the bank and act as if it was what it was worth on the Broker Price Option (BPO) that she has to get.

[MamaKaranja]

For starters here is the website I go to for Taxable Value of http://www.lehighcounty.org/Departments/Assessment/SearchRecords/tabid/315/language/en-US/Default.aspxhomes.

Look up :1249 Lehigh St.

This will give you the numeber's  I'll be looking at tommorrow.
Tax value is  $82 k....asking price is $102,300....ARV is  $120 k.

I visited a website for Realtor's and shopped for a buyer's agent ,detailing exactly what I wanted them to do for me...she is the only one who took the bait.
Now , the listings she forwards to me ...I am able to look up again on Realtor.com....I found out that the homes are not her lsitings but belong to a different Realtor...so she will be splitting the commission with the original listing agent,right?...this other REO agent,I had spoken too years ago and know who she is...I was tempted to contact her directly...this isn't illegal thing to do is it ?

This buyer's agent is the same one who advised me to cancel an appointment I had made to see another home and then turn around to book her instead...sneaky huh?...I asked her if there was going to be a problem....she said no,unless I make an offer and proceed to close....I see what you mean with her wanting a share of commission between her and the listingagent...maybe I should not deal with her in the coming future?