Please help I am a first time investor in California working on my first deal. I have 3 properties in Florida and my client wants to sell of the three for one for$65,000. and someone to take over the 1st of $974,000,00 and the 2nd of $194,000. I am not sure how to post this or structure the deal.
Would love some feedback.
Thank you,
First time investor that is in CA investing 3k miles away in FL? How do you plan to evaluate these deals? I’m not sure a newb could accuractely analyze something in his own backyard, nevermind a foreign area. Not to mention FL home prices are falling like a rock. Why is he selling? What are you planning to do with these homes once you buy them? How are you planning to buy them? This has all the hallmarks of a BAD idea.
My client is a real estate investor and basically he just wants to walk away from the homes, he doesn’t want to pay the mortgages anymore. I am hoping to be able to get a hard money loan and flip the homes through auction since people are getting hit so hard through traditional retail sales…I’m also working with a local Realtor who has provided me with the comps for that area
Think about this for a second, why is he walking away from them? If he had ANY equity in them he wouldn’t walk away, he’d sell them. If you don’t have equity you don’t have profit. If there is no equity a hard money lender won’t touch it with a 10’ pole either. RUN DON’T WALK FROM THIS DEAL!
There is $165,000 of equity in the property and the investor doesn’t want to deal with an Realtor commission fees. One strategy that was suggested to me was to transfer the ownership to a buyer and assign a management fee to tha buyer, then we would refinance the management credit. In your opinion does this sound like an option worth exploring?
Where do you seriously think you’re going to make money on this?
Total cost of properties: $1,233,000
Average realtor commission: 6%
Commission for the buy: $73,980
That leaves $91,020 left after realtor commissions.
Now we take out closing costs when you buy, closing costs when you sell, holding costs (see below), realtor commissions when you sell if you use one, transfer taxes on the purchase, etc. What about repairs? You’re assuming these properties are mint?
Holding costs you will need to pay every month you own it:
Mortgage payment on a $1.233 mil note
Insurance (VERY HIGH IN FL) - Since they are probably vacant builder’s risk insurance which is even more expensive and needs to be paid for in 6 month blocks
Taxes (ALSO HORRIBLE IN FL)
Utilities
Stupid things like lawn care, most people forget about things like this. Can’t show a house that has 4’ of grass in front.
And if you are using hard money figure 4-7 points up front ($49,320-86,310). Also do the math and tell me what that monthly mortgage note is going to be with $14-18% interest with hard money on a $1.233 mil purchase.
Let’s not forget that the FL market is falling and what may be worth one price one day may not be worth the same the next. Expect LONG hold times, there’s years of inventory down there. Also, where the heck did you get the figure for the amount of equity? Let’s hope you’re not using some fluff figure that you got from the seller.
THIS DEAL SUCKS! Sorry to be blunt but it does suck.
Wow, thanks for a very detailed response. It is good to know now there was no profitability before I invested a lot of time into this project. What do you suggest the seller do in this case? Wholesale? how should he dump a 4 year old never lived in property?
If you are going to wholesale anything in this market, it must be 65% - reapirs - period. The lower the better, because you can expect a long hold time. For future reference(so you don’t waste your time on the phone with these people) you must figure out what your highest offer can be on the desired property by determining the following: Market Value(estimate this a little lower than it comes in at from your realtor, for this market) Repairs(get a bid, and do not pay for one!) and then calculate. Ex: FMV 500k (estimated quick sale 480k)…20k Repairs… 0.65 x 480k = 312k - 20k = 292k…If you are trying to wholsale this deal, you need to get it under contract for no more than 292k roughly depending on your market and you stated you were in Cali. I to am in San Diego and the property values are plummeting, so SCRUTINIZE all appraisals and BPOs, as they are often inflated in this type of market!!
I know it sounds hard buying houses at that kind of discount, but these deal are all over the place…learn and attack! Good Luck!