I am excited about this post because me and my partner’s action resulted into a potential deal. Heres the deal…my partner found a property in craiglist (online class. adds) that said asking price 195,000 and appraised at 270,000. Right when we saw this we didn’t believe it but we made ourself drive out there to see what the property looked like. Well first of all the property is kind of in a country area where it doesn’t look like a typical residential subdivision. Right when we walked in, I was amazed. It is such a beautiful house with large square footage. He also has a small little guest house. We asked why he was selling it for a low price and he complained that he put it on the market with a realtor and it was shown only once out of the three months it was on the MLS. That showed he was motivated. He told us he bought 50 acres of land and was in process of building a home so he needed more funds to complete his project so he decided he wanted to let go of the property as soon as possible. He showed it to two people the past week and they told him they were going to put out an offer but they never called. The 3rd guy came by right before us and he said hed give him a call. We decided to take some action. We gave him an offer for 170,000 as the asking price with a 25,000 note that will be payed in a year. We did this so we can get a 70%LTV loan with no money out of our pockets. I know all this might seem a little too much to swallow i told myself i was going to take aggressive action. Well now we’re meeting him on monday to draft the contracts. This is where I’m lost. Instead of being a typical beginner that reads and learned everything before acting on anything I decided Im going to learn while im taking action. So what do I do. Should i request an option period of a week for inspection, appraisal, title insur and contingency to bail out or negotiate the price if anything seems wrong? I would greatly appreciate it if I can talk to somebody on the phone. I genuinely would appreciate any help
Ever deal you do, you need to have an exit strategy. So what is yours? What do you plan on doing with this property?? You already know its been on the market for over 90days and had very little interest? IS it in an area where someone will come in and L/O it from you, rent it immediately, or are you looking to flip the house???
Does the home need repairs??If so how much??Does it need updating (bathrooms and kitchen)??
So before you enter into the contract, you need to know what your planning on doing with the property and also, NEVER fall in love with the property, its an investment, fall in love with the deal…
What about closing costs? You will have to pay some money out of pocket. Once you take title, what do you plan to do with it? Live in it? Lease it out? Put it in a land trust and triple net lease it? Lease option? When you’re standing in the front doorway, key in hand, then it will hit you. What the hell do I do now?
You’ve been given excellent advice by yrush2000. Don’t run before you learn to walk. Either have a sound plan, or walk.
we want to wholesale flip this property. With the amount of loan we’re getting we can cover costs for up to 4 months. I don’t know the detail of all the closing costs. I know im confused but I have to take some action. As long as i put some contingencies on the purchase agreement I can bail. Thats my out just in case things start to get ugly. But with exit strategy it has to be a flip.
not sure how long house stay on the market down there…but up here ( boston ) it’s not unusual for a homes listing to expire more than once…i wouldn’t feel comfortable with only 4 months carrying cost, although i’ve been there many times…are there any upgrades needed on this property? landscaping, paint, gutters, floors, cabinets ect?? …g/l
no major upgrades, i mean painting can be done but its not necessary, but I mean what if i wholesale with 15,000 equity available…Im not trying to flip it retail. So you think I should just bail out? or go through and see what happen in the option period
i wouldn bail out just yet…where did you get that $270k appraisal from…did you get any other comps? …my other concern would be how come it hasn’t sold, considering it’s been on the market for a bit?
the seller told me the realtor only showed it once out of the three months and that the realtor was just not a hardworker. The appraisal is from a real company but the thing is that the house doesn’t have many comparables around th earea. The closest area is 9 miles away. See this is the tricky part because the area isn’t a typical residential area. Its alittle more country and more quiet. hmmm should I go to a realty office in that area and look up how the activity has been? Im thinknig about negotiating a lower price as we see more problems unfold during the option period. You think 1 week is a good amount of option time?
This sounds like a tough sell of a house. It doesnt matter if his realtor was lazy, if it was listed on the MLS, all realtors have access to the listing to show the property. Its more like no one was interested in the property at all, even to just look and make no offer or do a lowball offer…
Ask for the realtor handling the listing before and ask them what they think about the property and why it didnt sell. Tell them your thinking of buying it and listing it with them so they should be honest to a point.
But to me, the property seems like a dog , its in the middle of no where so it will be tough to find a buyer?? What kind of seller financing can you offer potential buyers, if any?/ You need to make this property attractive to young buyers or damaged credit buyers. Just listing the price with 10% equity is not enough to get buyers…
Not really. You can move forward with signing a contract just put in the proper escape clauses so you can back out within 30days and make sure any earnest deposit is held with an escrow agent so he can not hold your money hostage.
Problem here is, you have a home worth $270K. and your buying the time for $170K, plus you mentioned a note for $25K, so i gather seller is carrying small 2nd and your applying for a loan of $155K. The discount is great, you will put in some work as the house needs some crub appeal to make it more marketable i guess. From the sounds of it, this house needs to be perfect in and out to grab the attention of potential buyers because of location.
Lets just say the house cost you with rehabbing $195K, you can still sell it with a deep discount at 90cents on the dollar and still have a profit close to $50K before commissions are paid out which is great but you have a bad location…
You need to have all your exit plans in place?? You need an escape clause giving you 30days to find a contract, you need to find a buyer and determine how you will market this property, you need solid comps and appraisal (who told you its worth $270K, did they show you the appraisal since comps are still used to determine price).
I am not saying to walk away yet, but remember buying a home is like opening a business, they both have 1 key element for success…LOCATION LOCATION LOCATION…
first of all yrush thank you so much for the advice. I cringe while i read your comments because I hate hearing the negative aspects but it needs to be heard. I feel sooo frustrated and angry because I don’t know anything!!! Me and my bus partner dont have any close mentors. I sometimes wished somebody could hold my hand and tell me what to do and why I should do it.
anyways heres the dilemna, tommorow morning 1/30/06 we’re going to talk to the seller. Does he draft up all the contracts because he’s the seller? Or should we go with him the attorneys office? And by the way the selling price is 195,000 and verbally we offered 170,000 and with a 25,000 note. the reason we did that was so our private lender can lend us the money if its 70% LTV ratio. So on paper we just want to see the selling price as 170,000. And with the note we want to have a seperate contract. anyways most important is an escape clause or an option period of hopefull 30 days?I dont think we have time to assign the contract to somebody else. By the way I don’t know how to do that. Instead we’re going to flip it…we’ll see
Since your a new investor you do not have a sales contract you us. Many times your contract will be written up on the standard sales contract for the state you are in anyways. What you need to do is add your escape clauses to it in to protect yourself. Also do not hand money over to the seller, give it to an escrow agent, maybe his lawyer is one, you want a third party to handle the money so no one can steal it…
Now my problem here is your trying to flip the property. Keep in mind, he had no bits on the property, forget about people just not wanting to pay his price, they were not interested in just looking at it. This can make it hard to market for a flip.
What is your potential buyers profile?? Where will they come from, where will you market it??using a realtor, bandit signs. etc.
Remember do not get all tangled up in 1 deal, you will come across many other deals, though its a rookie mistake.
I must say I agree with yrush200. Deal sounds a little fishy as far as the exit strategy is concerned. Depending on where you live that is alot of equity sitting there according to the appraisal you are using to make your judgement. I cant see a deal like that sitting for 90 days unsold. Deals like that usually dont even make it to MLS…the agents pick up the phone and move that property in days if they dont buy it themselves with a straw buyer. Was it your appraiser and was he/she conservative or was this appraisal a pump by the seller and his agent.
ALWAYS take into account your worst case scenario as far as numbers are concerned. What looks like a great deal can often be a bad deal. Been there Done that. Thankfully I walked away from a
few deals that in the first few days of review looked like nice money makers only to find out after looking closer at the
comps,costs etc .were break even deals at best.
keep pluggin away, REI is a learning process, so just take it all in, and get out there and start looking for the next deal…good luck…and don’t give up !