How do you know when a deal is a deal?

Here is the situation:

The way to determine whether this house is a deal is to compare it with other houses in the area that have sold within the last 6 months. If they are similar in size, general condition, lot size, etc. then they should sell for a similar amount. If you plan on renting the property, then determine if the rents in the aera are at least 1 percent of the purchase price plus fix up costs (i.e. $20,000 purchase price plus $10,000 fix up costs must command at least a $300 per month rent). If you can get more than that in rent, it is a good deal.

You said that you have no cash and no credit, Would the owner be willing to owner finance? Paying 8% on the full purchase price amortized over 30 years would only be $146.75 per month. You might need to get a second loan for the fixup costs and possibly even get some cash for yourself if you do some of the work.

Another thought. On new construction, the cost of the lot is usually about 10 percent of the price of the house. Could this lot be subdivided so that another house could be built beside it and in effect giving you a “free” lot?

In short, this property could be a cash cow if everything works out.

Good Luck,

Howdy Caution357:

Sounds like property in your area is cheap. An acre here sells for $40,000. What you need to know first is what the house would sell for all fixed up. Then figure in all your costs to buy and rehab the house and the financing costs. One problem with less expensive deals is that hard money lenders like to do bigger deals. There are transaction costs per deal that they will pass on to you. It cost pretty much the same to borrow $100,000 as it does to borrow $20,000 except for the interest per month. The loan to value is the key with HML’s. Most will only loan 65 to 70% of the after repaired value, and this is all you want to pay too. You will also have expenses selling the property and holding costs too that could add up quickly.

I would try to get preapproved with a hard money lender possibly even before you try to get it under contract. This could save you time and may even save you face when dealing with the seller. Nothing worse than getting something under contract and not being able to perform.

If you get it under contract and do not get the loan you could still maybe sell it for a profit to another investor for a small profit.

I would not worry much about the Realtor. Their cut on the deal is still pretty small probably only a grand or so. The seller is under contract with them and if you want to wait until the contract expires you risk the chance of losing the deal to another buyer.

They do sound like motivated sellers and it sounds like you have the makings of a good deal. If you do get it and rehab it you may want to go next door and offer to clean up the yard and make the neighborhood look better.

Hope you can use some of this advice.



Have you asked? They usually don’t shoot you for asking and you might get the answer you want. If fixup costs plus the asking price of the property is less than 75% of the After Repaired Value (ARV), then it is a deal and you should go for it. The easiest way to find out the ARV is to have it appraised, but that costs money. You might talk to some Real Estate Agents and ask them what similar size houses that are fixed up are selling for or what they think it would be worth if it was fixed up. That will give you a good guestimate to start with.