I have a neighbor who is getting a divorce and needs to sell ASAP. There is a realtor involved, but they are willing to negotiate the asking price because they want a quick sale. The asking price is $445K with comps at $475K-$485K (two of the same style home is for sale around the corner at these prices). I know the lady and I am sure I can get the house down - closer to $420K-$430K. The house is 2.5yrs old and would only need interior paint to sell at the $480K price. The house will be listed on the MLS tomorrow. Is this a good enough deal to get under contract and flip to an investor? Also, I currently do not have a list of buyers, so is this attractive enough for an investor?
I would think that this is not that good of an opportunity. Let’s take the conservative end of your price ranges. Let’s say you negotiate it down to 430k. If the end investor ends up selling the house for 475k, they’ll pay around 24k to 28k in realtor commission, bringing their net selling price down to around 447k. Your buyer would make 17k not including your wholesale fee, taxes, interest, etc. Let’s say you ask for 3k for your wholesale fee, and he has to pay two months interest on the $430k he borrowed if it takes that long to sell, that’s around 6k in interest. So now his profit is down to 8k. Transfer tax on selling the property is 4k, his profit’s down to 4k. I didn’t even factor in the cost of paint which can be a thousand or two if paying people to do it. Then he’d have to pay income tax on that and he’d be left with about nothing. If it took one more month to sell than anticipated, he’s at a loss now. Or if you misjudged the market and it slows enough he might have to sell for 460k. Again, a loss situation.
If someone is going to spend 430k on a house, they probably want to bank at least 30-40k profit when all’s said and done. There’s more risk in a big expensive house like this, and no one will touch it unless there’s the potential for extra reward. Don’t waste your time trying to wholesale this deal, if you can convince your neighbors try to lock it in as a lease-option and then lease-option it to another tenant-buyer for a profit.
The biggest thing is that you know why they are motivated, but get the technical details. Do they have a mortgage, is there a second, how much do they owe, what exactly are they trying to do just payoff the mortgage, how much are they looking to walk with? You don’t have enough information
I honestly do not mean to be rude, but you obviously need a lot more education on wholesaling if y ou would possibly think this would be a deal.
Remember just because they are motivated does not always make it a deal.
The good thing is that you posted it here beofre you decided to do something.
You have two options:
if you still want to wholesale it you need to buy it at 350k or lower. In order to be able to flip it to an investor. This will insure the maximum profit, and will appeal more to your buyers, and easier to get rid off also.
option 2.
lease option the property do not have any realtors involved. Make payments due 60 days after contract is signed. This will allow you time to find a O/O ( owner occupant). Your purchase price would be decent at 420k, but would be alot better at 400k
Aithne - I think you are right on here, I don’t have enough info to start with. When I talked with her the other day she told me that she just wants to get rid of it. I guess I need to qualify “getting rid of it”. I will call tomorrow and get additional details.
I realize I need some education in the wholesale arena - thats why I am here like everyone else. Thanks for the insight. This board is such a valuable asset to have.
You need to buy the property to make money, leaving enough room so that your buyer can make some money when (s)he sells, too…you need to be at least 20% below market value, preferably 30% below…the would mean about $335K - 384K. SDAgent is dead-on!
I plan to talk with the lady today sometime. She has been in and out collecting some items so I am sure I can catch up with her. Once I find out how motivated she is to “just get rid of it” I am just going to ask how much is owed and how much she intends to walk away with. If its not down around the $350K range like SDagent advised, I will walk.
Sorry it didn’t work out, but every contact with a seller is great even if you don’t succeed. If anything it just goes to show you that when they say no, you’re head doesn’t really explode as we sometimes see happening in our active imaginations. We have more courage to go for the next one. Don’t give up. ;D