In another thread (which I didn’t want to hijack) about starting over from scratch, fdjake said “I gave her $2000 for a 90 day option on the home and spent about $500 fixing a few things”.
Then he said he listed it with a local realtor “as is.” Why wouldn’t the seller just go directly to the local realtor?
And another thing that has bugged me for a long time: Why would anybody with much equity in a home want to sell at a huge discount? I just don’t get it!
I hear the terms “distressed seller” and “motivated seller” all the time, which seem to me to be quite different from each other. Are not “seller with much equity” and “distressed seller” mutually exclusive terms? And how can a seller with equity be motivated? Can’t he sit on the fence and wait until he gets his price? Is he not “in the driver’s seat?”
I’m chomping at the bit and finally am in a position to jump in, but I just don’t get a few concepts.
Finally, people, I’m only asking questions for my own information, not to personally challenge anyone.
Rawbertsun,
Don’t make assumptions. Every seller’s circumstances are different. I looked at a multifamily rental property in 2008 where the owner had recently past away. The house had been owned free and clear for decades. It needed some repairs and the only child of the owner lived in Switzerland. The son in Switzerland just didn’t want to deal with it. He didn’t care if he got fair market value or not. He just wanted it SOLD! -The faster the better. He didn’t care that it MIGHT sell for $199K in couple of months. He was completely happy with the 122K CASH NOW. This is one of two properties that I bid on that I lost to cash buyers.
98% of real estate transactions are not like this but that means that 2% are!
There are many reasons that people sell their houses. These people have a problem. The house is not part of that problem. They don’t s see the value in the house all they see is the immediate problem the house can solve. They will sell a house that if they wanted to take sometimes very minimal effort and get full price for it at a huge discount. There are some common situations that cause people to want to “dump” perfectly good houses. I call them the 3 Ds. They are Death, Disease, and Divorce.
When a person dies their house goes to heirs that already have a place to live and now they are faced with the upkeep of another house. They want the money not the house. Value can sometimes be found there. When someone gets sick and need money for their medical bills they see the house as a source of money that they can convert quickly. In divorce the couple wants to get everything that is in common gone and they are in the minimization mode. That is they are in the mode of not showing income. So the temptation is to sell the house cheap so that SOB will get as little money as possible.
This is a very common MISUNDERSTANDING among NEW investors. These deals are out there…ALL THE TIME!
John_in_NC just purchased a commercial building for $200,000, he basically PAINTED the building, seal coated the parking lot, and SOLD the property for $400,000 2 months after buying it. He even posted BEFORE and AFTER pics on this site.
John’s project and MINE would not have sold for the prices they did had we NOT made the IMPROVEMENTS we made…BOTH properties showed poorly prior to our involvement…I gave John some ideas for that building and he followed that advice…On my property…I cleaned the house up, fixed some minor items…The house now was ready to list…as a result of what John and I did…OTHER people (NON investors) could THEN see the VALUE in these properties…Both these structures had been around for YEARS…People drove by them EVERYDAY…It took some EXPERIENCE to unlock the POTENTIAL in these investments.
WHY would someone sell a building for $200,000 LESS than it was worth???
ANSWER…
BECAUSE THEY COULD NOT SEE IT AS A $400,000 property and it WASN’T!!!
The owners wanted OUT…N O W !!! We got them out…FAST.
The biggest misconception I see among new guys is NOT BELIEVING these deals are out there.
THEY ARE…But you will NEVER find one of you refuse to believe they even exist!
Also understand that there’s downward price pressure put on regular “non-distressed” homes by the glut of foreclosures on the market.
We played this to our advantage with a house that a little old lady had lived in (and kept VERY good care of). The house was basically move-in ready. They started out at 38k and had no interest. Over the course of several months, the price walked down to 24.9k. We went in at 18k if I remember right and then settled at 18.5k. Not a 5k homerun property, but we literally only put about $700 worth of electrical upgrades in there and rented it almost immediately for $550/month.
This house was far nicer than your average neglected foreclosure that costs thousands to rehab, but there were simply too many other houses for sale at the time to get what this cute little house was actually worth.
If you search my posts, you can find me asking the very same questions earlier this year. I finally got so sick of dealing with tenants I sold a few rentals in march and used that money to by a commercial property that I thought would be easier to manage. I just had court today for another eviction. I think I will sell this one too once I get them out. I have lost my patience with idiots. There are a ton of them here in Raleigh.
It’s true that Pete helped me a ton. I basically did exactly what he told me to do in regards to the repairs. I didn’t know what I was doing really. It was an accidental flip too, I just wanted something with the same cashflow but less problems. Guy across the street offered me twice what I paid for it, couldn’t turn that down. I’m sure it had a lot to do with Pete’s advice on repairs, which didn’t cost much. I think my closing costs were more than my repair costs. It really opened my eyes and boosted my confidence. Now all I can think about is finding another. But not flip. I want income! I think I will do exactly with commercial with what I did on the residential side. Buy commercial steals all cash, repair, get tenant in, then go to my local bank and put a mortgage on the property. Repeat. Not easy and very risky, but If done right, you will have a cash flowing property 100% financed with no tricky gimmicks. I just hope the commercial collapse happens hard here giving me plenty to pick over or this plan won’t work.
Many thanks to all for the great responses. I think it just might be getting through this thick skull of mine.
But, I take issue with John in NC. I’ll go toe-to-toe with you here in the Twin Cities for idiot count. :biggrin
So, I just went down and checked on a commercial property that has a big sign out front. 5 acres, big bldg, 3 big bays - must have been a car dealer or repair shop at one time. Came home to check on it - whoa, Nellie - $1.1 million. I think I’ll keep looking.
Then I went up the street a little further and found a vacant commercial property on a well-traveled state hwy with no signs anywhere. Must have been a gas station in its previous life. I think I’ll have my wife check on it to see if it is or has been listed and then I’ll, well, I don’t know what I’ll do. Wow! I just burst my own bubble.
How much CA$H do you have to invest and how BIG of a credit line do you currently have???
Because unless ONE or BOTH of those items are LARGE…You’re wasting you time looking for commercial property.
READ Johns post…He SOLD some of his RENTALS in order to generate CASH and still needed financing to do this deal…Obviously, John has some serious credit history and came in with SERIOUS CASH or the bank wouldn’t have gone near this deal.
Make sure you’re LOOKING for something you have a SHOT at buying.
If you have $30,000 in cash Commercial property ain’t happening for you at this point…BUT…You can find PLENTY of houses to buy with that kind of money…
Right! Because if it’s hit the MLS it probably ain’t a good deal. I learned that here. Nyuk, nyuk.
I probably have accumulated as much knowledge here as any other newbie, but I have no experience. That’s going to change soon and you fine people here are going to be the first to know.
I would absolutely stay away from commercial real estate. Get your head around the basic real estate principals. What a transaction looks like. Review a few HUD 1’s know the costs in a transaction and how to mitigate them. Learn the cost of financing what’s involved and what are the rules. The most important rule is patience and remember you make your money when you buy right.