seller is not as motivated as a HO facing foreclosure however house is being ignored and the lady is open to seller her house. “for the right price, i’d move tomorrow” were her exact words. according to her, the house was appraised for $288k. i did not find out what she’d like for the property.
assuming i’d obtain the house somewhere in that ball park, i don’t see how i can afford it. i have maybe $10k that i can use towards the deal and possibly borrow against my current rehab, but i will still come up short. does anybody have any suggestions as to how i can structure this deal? maybe i shoudl try a L/O? sell to another investor?
ryan
I would be super careful going by her appraised values… I myself would find out how much it would take to get into that house, and if all of it was favorable to you. If it was, ask her how much she wants (its not going to match her figures, believe me, i’m still learning. lol) and you can try to work it out with her. First thing i might do is establish a number that you absolutely will NOT go over.
hey jason, thanks for your reply. i would never just take her word from what the appraisal is. i mentioned to her that i’d like to see the home in person and that i’d like to run some comps. she said asked why i would need to run comps and that she’d give me any paperwork i needed. i just told her i like to do my own research.
my guess to the way i’d like to approach the situation is to get the price that she’d like to get (probably somewhere around the appraised value if it’s legit) and work down from there. subtracting 6% for realtor commission, $5k or so for closing costs, and some holding costs. but once again i’m trying to see how i’d structure it to be profitable for me. if i put this house under contract could i just sell the contract to a relative, investor, friend etc.?
basically lets say i were to get it under contract for $250k and found someone willing to pay $260 for the deal. do i just assign it to them and have them cut me a check?
well that’s the thing, the house is being neglected…it seems she really isn’t going to do much with it. i think if make an offer that’s appealilng enough with a quick closing she might just take it. no hassles with repairs, realtor costs, etc.
i dont know…i’m stil learning so thats why im posting here ;]
1st you need to see what she owes and if there’s enough room for you to make a profit. No way you’ll get a short sale on a mortgage that’s current. You just need to work realistic numbers and see if there’s a profit to be made.
You don’t think I can use Robb’s (reoconsultants) technique? “creating equity out of thin air”
her asking price (appraisal price?)
6% realtor commission
$3k to $5k closing costs
$xxx for holding costs
= offer price
or I was thinking about a L/O for her monthly payments and paying the house in full before 6 years. then finding tenants for more than the monthly payment etc. (sandwich lease ordeal) but i’m not sure how i can incorporate the repairs that need to be done.
You don’t have repair costs or profit in there. Most people will tell you 30% profit. I don’t see how you create equity out of thin air. I must have missed that discussion.
well i guess i’ll need to get an accurate estimate of repairs before i can structure the deal correctly. i see that w/out the actual numbers, this can be a waste of time making assumptions. so having that said, when i meet this lady what info should i find out? what questions should i ask? and what other information should i make note of so that i can see if i have a deal or not?
I would not infer any urgency to sell from her comments. For the right price, I will sell you any property I own, too. Just because the homeowner is not maintaining the property, does not always mean the homeowner is willing to sell at a significant discount.
First, get comps. If the market value for this property is only $200K, and the seller thinks the property is worth $288K, you don’t have a deal here.
Your next problem is your exit strategy. If you can’t afford to close, then you may be limited to assigning your contract or entering a sandwich lease option.
If you want to assign the contract, I suggest you find your buyers before you contract will the seller. In other words, get a potential buyer in the wings before you contract to purchase with the seller.
A lease option deal also has its pitfalls, too. Do you have a sufficient cash reserve to cover your “rent” and other holding costs until you get your tenant-buyer in place? Will the market rents support what you need to cover your overhead? How will you make the repairs needed to get the property move-in ready? What if your tenant-buyers fail to perform on their lease, just stop paying rent? What is the eviction procedure in your county and how long does that take? Do you have the cash reserves to cover your expenses when you don’t have any income from the property?
let’s say i run comps and it turns out to be alot less than her appraisal. how would you justify to her that her home is not worth what it was appraised for? techinically speaking, wouldn’t an actual appraisal be more accurate than comps? i’m a realtor, and am not completely sure myself. it just seems to reason they would be, but then again i’m learning tid bits here and there everyday ;]
Let’s say you run comps and they suggest that the seller’s appraisal is really high. So what. Did you actually see the appraisal, or did the seller just say that it appraised for $288K? If there is an actual appraisal (not just the seller’s estimate of the appraised value), then you have to know when that appraisal was done. If the appraisal was done for a refinance, three years ago, the property may have been in better condition than it is today. The recent sales (comps) the appraiser used may have also been skewed to the upper end of the market rather than the middle to low end. Market values may be undergoing a correction since that appraisal was performed. For any number of reasons, there may be an appraisal higher than today’s current market value.
Yes, an appraisal is usually more specific than comps, and does take property condition and features of the comparable properties into consideration when determing value. However, you are just looking for a ballpark here. You want to use resale numbers that are inside the park, rather than home runs.
All that being said, my caution here is don’t become a motivated buyer. A better deal may be just around the corner if you wait.
My $0.02 she’s playing you because she knows you want the house…back off… take time to run comps take a look at the appraisal if there is one…you’re still holding the cards there’s a million other deals out there…make an offer if there’s enough room (lowball it) anyway…she’ll either accept or not…make another counter offer…(lowball it) if not walk away and continue looking for new deals.
good feedback guys. i donn’t want to give the wrong impression. i’m not dying for this deal. i just sent a mailer to a vacant (or at least it looked to be vacant) home. i plan on doing exactly that…running my own comps, and then making an offer from there. basically giving her a quick way out if she no longer wants to deal with the house. if that doesnt work for her, i can always refer her to my brother or aunt (i’m a referal agent now) who can list her home in the future.
also, just for clarification, i was not going to take her word about the appraisale. i would like to see the papers, and as Dave said, the date in which it was done.
I’m not sure if it’s lack of sleep or what, but as I was driving I got a little confused. Sorry if this is a dumb question, but marcus mentioned below FMV. When evaluating this deal, should I be taking the current (AS-IS) value of the home and then subtracting repairs…or should I be taking the ARV minusing the repair costs, and other costs (holding, realtor, etc.) and making that my offer. It might seem obvious that the appraiser took the ARV and subtracted repairs, but I’m not sure of the process they go by. From an investor’s perspective I want to make sure I’m evaluationg deals properly. sorry for the basic question…maybe booz has taken its toll on my brain
hey if u don’t think you can afford it pull out before its too late…
alot of time a similar or higher percentage can be made on a less risky deal...
Consider the house is 280,, does your loan have a prepay? how much capital do u have to float the payments???
How much can u make..
I would guess you can find a cosmetic rehab that can pull the same amout of cash with far less financed???? R u afraid of drywall and hauling???
or maybe its a time issue… first phase condo coversions are hot… at a far lower sticker price… lots of deals right now average consumer is running squared cuz of interest hikes!!! keep ur eye out and snag a real deal that doesnt bend you over backwards holding a tray of glasses!
Pay close attention to the 70% of ARV, this is your profit/wiggle room/safety net. I see so many beginners that want to make $10,000 rehabbing that first $200,000 house so they want to offer $190,000 - repairs. This is suicide. You aren’t even accounting for negotiating with a potential buyer much less a 6% RE commision. If you can’t get a seller to accept a deal based on the above formula (as a Maximum Allowable Offer) then you haven’t found a MOTIVATED seller. Move on to the next one.
Don’t fall into the trap of thinking that “this is the ONLY deal that exists and you HAVE to make it work”. That kind of mentality will get you in trouble.
