Hi. I was contacted by a seller that has three adjacent townhomes he is looking to sell quickly because he wants to purchase some waterfront property that is currently listed. Here are the details:
ARV - $190K each
Repairs - $10K each in updates
Asking - $153K each
Owe - $110K on 2 of the units, and the 3rd has no mort balance
Current rent - $900/mo each - probably could be raised to $1100 if they’re fixed up a bit
My exit strategy: Wholesale
The seller wouldn’t commit to telling me how much cash he needs for a down payment on the waterfront property - doesn’t seem quite as motivated as I’d like him to be.
I could only get him down to $145K on 2 of the units (he wants all cash) - even at that price, he wanted to take a day or two to discuss it with his wife.
He is willing to do some owner financing on the third if I offered around $155K so that he could sell the note.
Is there some combination of price/terms that would make sense? $145K cash each is higher than I want to/should offer for this property.
This is not advice on what to do, just an observation from a beginner who is trying to learn, and decided the best way would be to analyze other people’s deals and give my opinion (I.E. I may be completely off base)* :beer
So with the above in mind…
If you are planning on renting these they won’t cash flow. Using Propertymanager’s quick formula (Rents * 50 = Purchase price) you would have to buy these at $55,000 each in order to make money with only $1100 in rent. That is unless you were putting up a lot of your own money to knock down your mortgage payments.
However, you seem to have equity if you buy at 145,000 which should allow you to do something, probably wholesale like you said.
The standard formula is ARV*70%-costs=good deal.
So ARV $195k * 70% = $133k.
Subtract out repairs, soft costs and the like, and a good deal would be around $120k-$125k.
Then you’d have to subtract a bit for your profit, so $110k-$120k would be your target, assuming you have solid numbers for ARV and repairs (I am always suspiciuous when repairs are stated as $10k).
That said, it depends. If you had landlord buyers interested in 80% ARV deals ($156k-your fee) and the updates could wait, then I might do a skinny flip. But you have to have a very solid buyer to do this.
I’d give him a written offer at $330 for all three. If he goes for it, fine. if he doesn’t, keep in touch. He may change his mind in a few months.
Well, it looks like a realtor made an offer at $450K for all three of the townhomes that the seller accepted. I told the seller to let me know if the sale falls through.
In the meantime, and for future deals, I need to work on building up my buyer’s list with a wider array of buyers.