I found 2 homes that I will be negotiating this week. I’ll work out the numbers for you and you can tell me if you would be interested in something like this.
The first is in Davenport, FL. Its a 4 bedroom 2 bath home with a 2 car garage. It has over 1400 sq ft. I have 3 comps that are similar size (2 of them are smaller) that sold within the last six months averaging about 195k conservatively. He says that all the home needs is fresh carpet and a fresh coat of paint. He is asking $136k and if what he says is true, I am going to offer $120k.
The second is in Riverview, FL. It is a 3 bedroom 2 bath home with a 2 car garage. This one has over 1900 sq ft. I have 3 comps in this area (2 of which are smaller) that sold withi n the last 7 months for an average of $245k conservatively. This seller says that the house is in good condition and just needs minor touch ups. He is asking $165k. If what he says about the “minor touch ups” is true then I will offer $140k-$150k.
I am going to see both homes on friday and I will make my offer early the follwing week. If the repairs are as they say, would these numbers make for an attractive assignment? I don’t think I’m ready for a double closing yet.
We are in the home buying business in Northern California in the Sacramento area. We are being very cautious due to the rapid decline in home prices. Our answer is to research back 8-10 months and track the raate of decline, and then advance it 6 months which is the average time on market and estimate the future price the propery will bring. There is money to be made, no doubt. But extreme caution is the watch word for us. Good Luck!
Good advice. An appraisal that shows comps from the last 6 months may fly for an appraisal, but in some areas - what it sold for 6 months ago may be more than what it will sell for today.
thanks for the replies thats definitely some good advice. I assume that the selling price would be similar because the comps that I used are fairly recent. The dates for the first set of comps are 10/5/07, 9/14/07, and 7/19/07. Do you think the value will have changed that much from these dates? I understand July, but september and october are fairly recent. Thanks again for the replies.
These could be good deals but you really need to be talking to buyers. Do you have contacts with landlords and rehabbers in the areas. In some areas , investors will not touch a property except for 65%ARV minus rehab and carrying costs. Other places it will be 70% and others it is as low as 50%.
On your first deal your tentative offer price is 61% not counting any rehab or holding costs. Assume repair is in the $5-7k range then you will be buying in the 63-65%ARV. Fine for a wholesale when you can wholesale at 70% but if you are in an area where they expect 65% then you have nothing.
On the second deal you plan on offering $140k is 57%ARV not counting repairs. Better - depending on repairs.
The two crucial parts are how much you can sell it for, and how much the repairs will cost. You must know your exit strategy - how you will sell it for and for how much, to know if it is good for you.
I am going to contact some “ugly house” people right now. I forgot to mention that both homes have tenants in them. Will that make a difference? As far as the contract goes, are there any special considerations that I should add in regards to the tenants?
For tenants the main thing is to determine what are the details of their rental contracts as well as their attitude about staying in the home.
For instance, if these are ugly houses that need a lot of work, but the tenants are on 1 years leases and they will be there until July 2008, then the new owner must carry the house with only the work they can do around the tenants until the tenants are finally gone. That is different than if they are on month-to-month and you can get the tenants out within 30 days. Also, if the tenants are in the property below market rents, there may be local housing laws that limit the rent increases possible.
On the other hand, maybe the tenants would be willing to change from their current lease to a Lease-to-Own arrangement. Some of the best L/O arrangements can be made with existing tenants. They are comfortable in the house and are willing to pay extra to be able to buy it. Talking to the tenant about what they would like to do can be a profitable thing.
As far as information in your contract there is little, because any tenancy contracts existing will carryover to the new owner, whatever those terms will be. The only additional thing I would add is that the purchase is subject to you reviewing, verifying and approving the existing rent agreements.
I think you’re pretty close to the right prices. I won’t pay more than 60% of the fair market value price, which you’re using the comps to estimate.
The more data you can get the better. Go back 12 months, and don’t take the avergae, but rather look at the lowest 25% of your comps. The market is still expected to drop, but I believe that if you buy at 60%, you won’t lose money.
For your deals, that woul be $117,000 and $147,000 respectively. These are the max prices I would pay. This assumes that the properties don’t need major work. Whatever work these properties need, deduct that price from the 60% estimate and adjust your offer accordingly.
It’s a tough market right now for many people. There’s a lot of homes on the market, and they probably aren’t looking at any better offers. Don’t be afraid to make low bids. You’ll make more money when someone says yes!
I agree with about everyone out there. I think it would be best to talk to the tenants and get their “feel” of the neighborhood. It won’t hurt to knock on the door and ask about the neighborhood because you might be investing in that area. That way you can find out if they are thinking about staying there. Also look at that house and compare to all of the other houses on the block. Remember, “curb appeal” is very important. Let us all know how it goes.