Hello everyone,

My first time posting so bare with me. I found a potential deal for a rehab. I just want to know what you experts think.

My sister’s in-laws bought a home next door to them at about $48,000 a year ago. The county AV is about $68,000. I believe they bought it to try to make a profit, they just did not know how to go about doing it. They just rented the home out for about that year. They put the home on the market three months ago to sale ($73,900), but got so impatient, they rented it out again a month ago. I know that they are very frustrated with the maintenance of the home. I have seen the home and it does need some work. (Mainly cosmetic, I think). But that was only a walk through. I would get an inspector to check. I know that if I can get the owner to sale at their purchase price it would be a deal. Trouble is, how can I?

If you think this could be a deal, please let me know.


P.S. The home is located in El Paso, TX.

Howdy Rtriolo:

Most rehabbers use 70 % of the retail value as their maximum to pay for property including the rehab costs. Lets assume you can sell the house for $70,000 once you complete the $5000 rehab (again assumed). $49,000 would be the most that you would want to have invested especially using a hard money lender. If you have you own cash or cheaper financing you may consider this a good deal and go ahead and do it. Not that great otherwise.

You may also want to consider owning it as a rental yourself. Here again the experts try to make their money going in and would only pay about 80% of the retail value to acquire rental property and would try to get 100% financing either from the bank or the bank and the seller combined.

I hope these rules of thumb help some. Keep in mind the carrying costs and Realtor fees doing rehabs, both are expensive and can make a profitable deal sour.

In order to get them to sell it to you you need to know their motivation. Do they just want their money back. They probably could not sell because it needed work to compete with the pretty houses. The 20% profit or equity is what Ted was talking about. If you can’t get that you could consider a partnership with them. Cost plus some profit for you(guaranteed, first) would be a way to do the owner financing. They may have re-rented because they had a loan and couldn’t afford the negative cash flow while waiting. Find out and structure something that you can enjoy while helping them.