i’m looking at my first deal…fortunately or unfortunately it is with a fsbo. normally i’d have a realtor run me through this, but I’m going to lean on the experience of close friends/family who have more investing experience than myself, but in the meantime i’ll throw this out there…
is it the same process that i would go through with a realtor?
how do you guys negotiate the price?
i still need my own lawyer/order my own inspection/appraiser? Correct?
anything else I should caution myself against? thanks in advance.
I tried searching fsbo homes when my wife and I were home shopping for our home. I wanted a fsbo to cut out the realtor middleman.
I found that generally people sold by owner because they were too cheap to pay a realtor, or they didn’t believe the listing price a realtor suggested.
It was near impossible for me to find a by owner home at actual value,let alone at a discount.
I second what HPM said. Most FSBO’s are not deals.
A realtor would handle all the paperwork in the deal.
Our realtor negotiates the price for us. The couple times I’ve tried to buy straight from the owners, I’ve run into exactly what HPM talked about. You have to know what you can pay for a property. These owners simply wanted too much for what they had.
You can call a local lawyer who does RE deals. He will be able to do title search for you and close the deal. Inspection and appraisal is only if it’s required by your lender or if you want it done (if you’re paying all cash).
If you don’t have a good background in housing, you should have someone take a look at the place and make sure you’re not getting into a problem house. Remember, the owners may not have listed the house because it needs significant work and they were worried the price would be driven down.
Wow, I must be different because almost all of my deals are FSBO. This doesn’t mean they’re listed for sale as FSBO but there was no realtor involved.
I agree most FSBOs listed for sale aren’t deals, but the key is to find motivated sellers with unlisted homes (technically they’re still FSBO)…usually they may not even know they want to sell until they run across you.
Point is, as a RE investor there’s little chance of you making a living while dealing exclusively with Realtors. The ONLY time you should be buying with Realtors is when paying all cash or wholesaling a listed property. Other than that the Realtor will absolutely positively get in the way…they tend to not understand seller financing, sub-2, options etc and if they do they will probably want to get paid upfront…guess who gets to do that?
Anyway Nluvya, what are the numbers on this deal? The answers to your questions hinge on what kind of deal this is, or more precisely whether this is even a deal at all.
The key to finding a good deal FSBO or otherwise is gauging a sellers true motivation. The more motivated they are the better the deal looks.
If you are looking at online FSBO sites. Pay attention to the listing that are a few months old not the newer ones. Contact the owners and see if they are still selling the property. If they are find out what their motivation is for selling if it’s because of death,divorce,moving out of town,behind on payments then you are in prime position to negotiate a deal.
thanks all for your input, maybe i communicated it incorrectly, it was a rehab property, the rehabber buys properties, fixes them up (everything in the unit is new). so he’s an investor himself and sells all his properties this way. so he never lists any properties he has with a realtor. i’ve found the best deals i know about do not come from the mls or any listing.
havent run the numbers just yet, taxes are like 5g. the wholesaler says the sellers looking for about 270k. 270k is way to high for that area. it’s a 3-unit. 4bd, 3bd, 2bd. i would occupy the 3 bd unit.
Determine the revenue you’ll get from the other 2 units. If you’re looking to actually cashflow, your mortgage on the property should be less than that amount. Work that mortgage backwards to determine the max buying price.
For a very simplified example say the other 2 units will rent for $1500 and $1000. That’s $2500/mo revenue. Say you want a gross cashflow of $500/mo (which is really more like breaking even after vacancy factor, maintenance, etc but heck you’ll be living rent/mortgage free so what the hell). Then your mortgage payment should be $2000/mo PITI. Say taxes & insurance run $650/mo, your P&I payment will need to be $1350. At 7% interest on a 30yr loan that works out to a purchase price max loan amount of $204,099.
These are all hypothetical numbers, & doesn’t take into account any down payment, repairs, maintenance, vacancy factors, etc. But since you’ll be living there yourself I suspect you’ll have a good handle on things, and if you have to actually come out of pocket from time to time it won’t kill you since your tenants will essentially be paying your own mortgage.
Actually, this works out to the maximum loan amount. You will probably have a down payment requirement depending upon the loan product available to you. FHA loans require 3.5% down, conforming loans require 20% down if you want to avoid PMI.
Don’t forget to factor the down payment into your calculations.