Did I make the RIGHT Choice?

Hello everyone,

I’m just getting started in the REI business. And I was thinking about purchasing the following property.

Tax Appraisal: $315K
REO Price: $260K

Estimated Repairs: 65K +
(Termite treatment - $1,438 Foundation - $5,000 Pool Repair - $12,200 Master Bath - $10,000 Guest room & Bath - $5,000
Appliances - $8,000 Ext. Siding - $8,000 Landscape - $ 4,000 Sun Room Ventilation - $2,500
General Cleaning - $2,000)

I found out that the bank would accept an offer of $220K for the house. The house is located in Texas. It has 3200 sq. ft., 4 beds/ 3.2 baths, a sun room, a solarium (a room in the middle of the house that has glass walls where plants reside), and a pool/spa.
Also, it is a 2 story house. And the house has been on the market for over 220 days.

I estimated that it would take 5 months to repair and sell the property. My offer was $140K which was not accepted. My reasoning for offering so low was as follows.

Purchase Costs —> Down Payment $ 0
Holding Costs $5,000 (cost of money for 5 months)
$ 500 (home insurance for 5 months)
$3,000 (taxes for 5 months)
$2,000 (utilities for 5 months)
Mortgage $140,000

                                           Total                 [b]$150,500[/b]

Net After Sale —> Selling Price $260,000
Commission 15,600 (6%)
Closing Costs 26,000 (1% of selling price)

                                           Total                      [b]$218,400[/b]

Profit = Net After sale - Purchase Costs - Repairs = 218,400 - 150,500 - 65,000 = $2,900

The way this market is $2,900 is a risk I’m not willing to take. I really don’t know how long this property would sit on the market. Besides, there are approx. $23K of updates I would like to do.

I decided not to to buy this property as this time. BTW, I was going to FLIP it. Also, the comps showed a similar house SOLD in June for $299,900. And the rent comps are around $1800/month.

So, in your opinion, did I make the right choice? Any helpful suggestions would be appreciated?

Thanks in advance.

Hi,
In my opinion, you absolutely were right in walking away. Even in a hot market you “don’t chase pennies with dollars.” That axiom also applies to horse racing wagers… :wink:

Good luck…but you might want to sit on the sidelines until things shake out.

David

You’re projecting a profit of $2,900 with estimates on costs. It’s only going to take one bad thing to happen to eat all of the profit here.

Not only that, the profit is scarce to begin with… 5 months to fix and sell for $3k? That’s only $600 per month, you can get that working at Mickey D’s - not installing siding and fixing pools. :slight_smile:

Glad you walked away, sure there’s a better deal out there for you. Good luck.

If your selling costs are 1%, then that is $2600 not $26000. How does an extra $23400 profit change your perspective of the deal?

Oops,

Thanks Dave!!!

I’m still apprehensive b/c the market is really soft and I’m not sure how long it would take to sell it. I don’t want to make a mistake now and miss out on the action when all of the other ARMs reset. On the other hand, if you don’t get in the game then you …

On the other hand, if you don't get in the game then you ...

Step away…step away from the opportunity. You never want to buy for the sake of buying…

All of the information that you received says that this is a skunk.

Everyone is right… move on. There are other opportunities ahead.

Thanks everyone for your comments!!!

I’m just ready to work hard and make a lot of money.

Are there any other techniques I could use to make money on this property i.e. wholesaling.

Thanks

I am in Texas also. Flips work best in places where houses are selling for more and more each month. That is really where the profit comes from. If you find a house in not too bad condition there is not much rehab, but not much discount on the purchase either, houses that you can buy at a big discount have a lot of work that is needed and that takes away your profit. I Texas flips make $10k or less as a rule and are really hard to find.

A few things the value of the house is not the tax value it is the comp value. Real estate agents can give you comps, but you need to tell them what comps you will accept. What you want is what every other house just like the subject house in the same neighborhood has sold for in the last 6 months. You will also hold that house the average amount of time that those houses you just looked at were on the market. Don’t let the real estate agent give you comps that you have not selected yourself. Their comps can be asking price comps (which is their main default when they do a search). They may also skip neighborhoods or sections of neighborhoods. So you need to look over his shoulder and point at the houses you want him to include.

Great reply Bluemoon06. Something alot of people overlook is the comps, taking whatever the realtor gives them. & Wheres My Money, if it walks like a duck & quacks like a duck, it’s probably a duck. I personally think you should never chase a deal just to be in the game. If you are uncomfortable in the least bit, walk away immediately, correction, run away, lol.