"Might" have a good 1st deal here? Comments suggestions?

General Real Estate Investing
1

One of the bites Ive gotten on CL ad is this lady who doesnt want to go through the rental process again and just wants out from under the property. She was selling it on land contract when after 5 months he couldnt pay rent anymore, and moved. I will attach our emails so far:

Her - Hi, I saw your add. I have a property I have to get rid of and do not want to do a land contract or owner financing. It is assessed at $43,900 and I understand that means nothing. Location is **** German street still a decent neighborhood. My asking price right now is $39,900 but I am willing to negotiate. Four bedrooms, small yard, new carpeting, fresh paint I had a tenant in there briefly but he could no longer pay the rent. It is now vacant and I do not want to go through the rental process again. Please call me at 814-882-****. I am in Erie, Pa.

Me - Does it need any work? You understand I am an investor right? I cant pay full market price for a property. I see you dont want to do a contract for deed or any owner financing, but those would be the only way Id probably be interested in paying retail value. If youd be interested in a long term lease and would give me the option to buy it, I think we could work out a deal where you got something close to what you are asking for it though. You wouldnt have to be responsible for any of the repairs and anything else related to being a landlord. All of that would be taken care. If this is something youd be interested in please get back in touch with me. Thanks

Her - I had a rent to own with my last tenant but he backed out. There are a few minor things that need to be done, the carpet has one spot that needs to be cleaned there is a drawer front in the kitchen that needs to be put back on. The back yard is small but the tenant never bothered to mow the grass so it is over grown right now. I have already put a lot of work into it before this last rental he was only there for 5 months. The outside needs some work he was supposed to take care of it but didn’t. It could use a paint job but it’s not too bad right now. The porch floor needs some boards replaced and painted. All storm windows and screens are there. It was Section 8 last year and had to pass inspection.
What percentage rate are you looking at for the rent to own? I was offering 25% at the end of the lease toward the purchase of the home. I really want to get rid of the property altogether. I would consider any offers.

So after this email back I called her. Asked her what the lowest she could take on an all cash offer and she said 25k, and she just put 5k into before the last renter.

Ok, starting to lick my chops a little because I already did some prelim comps and come up around 50k. After talking to her some more she starts asking me about terms for doing a land contract etc, I thought wait, you said you werent doing any owner financing anymore, but alas, it looks like she would. Her situation is that she is renting another building, that also has her store front, so she cant move into this other property, and she was using the rent from it to pay her rent where she is. I explained just a little about doing a LO but didnt get into much, she sounded interested, but im not really that into the idea myself, would really just like to try and flip this one if possible. I figured just a few thousand, if that in repairs so was going to make an offer somewhere around 22k. Its a free and clear house. Ill know more tomorrow when I go see it. Any comments or suggestions are more than welcome.

2

Well, I couldnt let it go, I sent her another email:

"Hi Sherry, had a question for you, if we can get a deal together tomorrow would it be a problem to get a key so I could show prospective buyers or my contractors? Or is there a lockbox on it now I could have access to? Im going to go about getting the quickest closing I can on this to minimize what you have to worry about as far as paying your rent there, but at the very least, getting enough to cover that rent of yours, either way, Im going to make sure you dont have to worry about that If I can.

First thing is hammering out a deal that works for everyone. After doing a preliminary crunching of numbers, looks like I could offer you about $21,930 on a straight up out the door price. I havent done any other numbers yet but this is the best option to just get out from under it. Anything else would entail you taking a land contract or lease option. Might even be able to bump up the price some if you could hold a note for even part of it. $21,930 though looks like your best bet. I dont really like to make an offer before I see it, for obvious reasons lol, but it sounds like the sooner you get some money the better. Let me know what you think and were still on for tomorrows meeting. Thx"

I heard its best to actually give the seller 3 options for purchase, an all cash offer, an owner financed offer, and one other one, I assume it is somewhere in the middle of these. Can someone enlighten me on what kind of offers would make sense in this situation?

I never said the specs on the property but its a 4bdrm 1 bath, 1320 sq ft 2 story with comps about 50k. When looking at those comps, it looks like those were bought, fixed up and sold fairly quickly. Thanks for any input.

One more thing I forgot to mention, she said she listed it 3 weeks ago with an out of town agent who agreed to take 2% and has been pushing HARD for her to do owner financing… At full price its 800 for him, with my offer, about 500. As long as he gets paid, I can deal directly with her correct? I went and got my license about 8 years ago but for some reason I cant remember how that works for sure.

3

Her response to my last email:

I would still like to show you the property it has a lockbox but the realtor never gave me the number. I will try to contact him that would work better for me too. You could go look at it anytime. Yes, I would consider holding a note. That would be a partial owner finance right? Actually all I need right now is about $10,000 but that would not include the taxes. I have to get my car paid off and some other bills. Also I need to have surgery by February or March. I have insurance, but no money saved while the business would be closed. Gotta do what ya gotta do. Right??

Or I could accept that offer if you paid the taxes. You have until September of next year before they will bother you.

4

hmm, nothing hu, guess ill plug along and see what happens…

5

gadgetolds,
Keep us informed on your deal–I have been following it every day. But I am not expert on lease options, or rent to own.

How far away is the property? Sounds like you better go take a look pretty quick. You have a motivated seller and you have made friendly win-win contact with her.

Let us know how you go from here, and please share it. Is this your first deal?

Furnishedowner

6

thx FO, yes its my first deal and I dont live far. Drove by it yesterday and she gave me the lockbox number today, she said she doesnt care if she ever sees it again when I asked if she wanted to be there when I went. I dont think im going to go the LO route tho, would like to just flip for a few thousand right now since I lost the job etc, no cash to play with for any holding costs. Thanks for the kind words of encouragement. :beer

7

This is a pretty good experience to read about. It’s exactly what I have heard about in the books and by other investors but never had the chance to actually “listen” in on the process.

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She seems tremendously motivated, that is great. You should find her bottom line. A tactic I use is that I ask if I come over right now with a bag of cash, what is the least they will take for the home. Whatever they say act like it is way too much and suggest something much lower with the hope that you can met in the middle. Met in the middle but only on the land contract/owner financing. If resistant offer a small down payment to show your commitment. Make sure you can assign/transfer the loan to whoever you will flip the property to. Then find someone to give you a fee and take over the loan. If you have trouble with the contracts and everything contact title. They should have a cheap attorney to help too, if they cannot help then call a different title company.

This could be a slam dunk for you, make it happen!!

9

Thanks Moellerryan, unfortunately her realtor brought an offer for 29.9k, so I told her if it falls through get ahold of me. Of course this is after her whole family told her my offer was to low lol but oh well, shoulda took it when she offered to take 25k lol

10

The most important thing for you to do is go find 10+ deals better than this one. But definitely schedule a couple followups, you never know if it will fall back into your lap as there are no guarantees that offer will close. If it falls out, she will really become even more motivated. Who cares what her family says. If you need to, justify your offer with other potential deals or listings that are lower then hers.

11

Very good Idea justifying the numbers I will remember that one…

12

Well, she contacted me with this email… Any suggestions?

Hi Steve I’m getting frustrated. The buyer is going FHA everytime I turn around I am paying for more things that they need done. We started out at $29,900, I have to pay $3,000 in back taxes, realtor fees, $1,500, inspection, now they want closing costs, have to touch up the outside paint, had to do some work on the inside, now they need to test the furnace had to have the gas turned on. I told the realtor I wanted an “as is” sale it is not turning out that way. I had to put all the storm windows and screens in I had them at Kraus since May. That’s all done. I just wanted it gone but now it’s just one thing after another. If this does not pan out, what would be your best offer??? If all else fails I will be renting it out again

13

Seems to me the deal is back in your hands. She is probably even more motivated than she was before and is willing to go lower than before. She is probably just trying to play a little hardball with her comment about “renting it back out again if all else fails.” At the least, I would go back to your original offer of $21,900 or whatever it was. Maybe push a little lower b/c you can say some other things have popped up, and I can only do it for $20,300. Tell her this over the phone and feel her out. You gotta push the number onto her and then wait in silence for her response.

I got a 8k off a property for a mild termite issue that cost me $375 just by feeling out the seller and putting a number out there and keeping quiet. If they are motivated then they will consider it and might just take it.

Hope this helps.

14

I remember 3 years ago in Dec 2007 I had a seller(who was an investor himself) call me about a property he had paid 32K for a year and a half earlier. He had completed all the exterior work except gutters and downspouts. Compete tear-off 3 dimensional roof, all new windows and it was brick so the exterior required no more maintenance. He was in desperate need of cash. I could tell. He told me he had put 8-10K of materials into plus all of his time. He told me at the time absolutely, positively, I cannot and will not go any lower than 32K which was still a loss for him, especially if you consider the time and materials he already had into it. It was on the radar with the city for health violations because of no gutters & downspouts. It was close to Christmas. He called me out of the blue after I had seen the property and asked what I thought. I told I could not pay what he was asking(32K). He then told me absolutely, positively he would not go lower than 26K. The ARV was 85-90K at the time and I figured it needed at most 40K of work as the whole interior needed rebuilt. I said, I tell you what, this is my final offer and you can take it or I wish you well in finding another buyer. I will give you 21K and I will give you a downpayment tomorrow of 5K cash. I could hear him and his wife whispering in the background and he said under his breath, “yes that is true, but we could really use the cash.” Within moments he agreed, I bought the property, rehabbed it, and flipped it a few months later for 87K with $2400 back at closing. I netted about 15K after all was said and done. It is still funny as I remember that conversation vividly and is a reminder today the power of cash. I love this business.

15

Not knowing how much she owes on it, I’ll advise the following pitch:

  1. Ask her “what’s the least you would take if I paid you cash for your equity and take over your loan quickly?” In other words go for the deed.

  2. If her price is reasonable say, “So the difference between what you owe and what you’d sell me the house for is $___. Now the way we usually work it, is that we pay you that equity when we cash out, will that be ok?” In other words you’ll buy it for say, $25k but she’ll have to wait til it’s cashed out (and YOU get paid) before getting her equity.

This opens up a virtual smorgasboard of exit strategies for you, including rental, work for equity, rehab, seller financing, or you could even sell it for cash as-is. Matter fact you could wholesale it by just selling the deed. This way the rehabber only has to come up with your fee, closing costs, monthly payments on the underlying loan, and rehab money as opposed to having to raise enough to pay all that PLUS pay off the underlying loan and seller’s equity…he won’t have to pay that til after he fixes it up and sells it.

16

Oh by the way, from the looks of it this is a good deal…motivated seller, plus room to make a profit.