Ok, I’ve come accross a possible first deal so here it goes. This is a fsbo.
3BD/1.5Ba/full basement with a bar and fireplace/just about 95% renovated/has a lot of new updates/nice size backyard/932 sq ft/ Seller is asking for $73k, looking to assign for $78k. The seller will have all of the updates finished by the time the tenant moves in.
Comps are between $59k and $104k for homes sold between Dec. and Mar. The bank appraisal is $95k. With the exception for the one for $59k, the rest of the homes were sold for between $70k and $104k.
There is a possible tenant who is going to be moving in on the first of the month so it would cashflow right away. Their credit is a little shaky and I can get it w/ or w/o the tenant. The tenant would be paying market rent of $835, and a sec. 8 tenant would be $760-$790. Question is it better to get it with the market tenant with the shaky credit, get it with a sec. 8, or just get the property unoccupied? Which one would be more attractive to the person I’ll assign it to? Meeting with the seller to go over the contract and contingencies.
The seller wants to use a very generic contract and it doesn’t have anywhere to put contingencies. The title company he uses is the same one that I’ve been recommended to use by other investors. I don’t necessarily feel comfortable using this generic contract and would rather use one that I’ve seen most commonly. Is there anything I’m missing here?
THANKS, looking forward to the replies!!
The way I see it, your only risk would be however much deposit you give the seller plus whatever costs you incur to market it, so you don’t have much to lose here.
With that in mind, here’s what I would do
Try to beat him/her up a bit on the price. Ask “if I can pay you all cash and close quickly what’s the very least you would accept?” Whatever the answer, your reply is, “is that the best you can do?”
Give him/her a very minimal deposit, I’m talking $10. Just say, “I gotta give you this just to bind the deal.”
Go with the $835/mo tenant w/ shaky credit. Even $835 will be kinda tight as far as positive cashflow to your end-buyer. Make sure there’s a substantial deposit paid in.
Market it like crazy to landlords in your area.
Just my opinion. Good luck!
Thanks for the reply. I’ll keep that in mind about trying to get a lower price. It started at 74k and came down to 73k. I’ll try to negotiate it down more. The guy seems to be pretty reasonable so even 70k will be a good deal. I’ll see if he goes for it. (Don’t want to seem greedy though.)
I’ll ask him about the tenant’s deposit today. He pulled the credit and said there were some concerns but this tenant is a referral from one of his long term tenants. From our conversation, the person just seemed to have fell on some hard times and has a FC on the report. I’ll really be sure to find out about the deposit.
I call a lot of “for rent” ads in the paper and signs I see posted and I’ve come across tons of landlords looking for new deals. This will net me a 5k assignment when it’s all said and done.
I’ll take all the good luck I can get.
What about the contract? Would the seller balk about using one of my contracts instead of his generic one? I want to add a couple of contingencies to it.
Looks like you got the green light. I wish you the best!
As far as the contract is concerned, I don’t really see too much of a reason to put any contingencies on it at all, IF you give him a small deposit. Your only risk is what you put up for a deposit. If you can’t get it wholesaled I’m sure he will give you an extension, and if you just can’t get it sold oh well you lost a whole $10.
With that said, I also don’t see a motivated FSBO giving you a hard time about using whatever contract you put in front of him either.
I say provide the contract at the agreed upon price with whatever contingencies you feel comfortable with, give him a small deposit and I’d bet he signs it.
Let’s review basics:
First, comps are NOT in a range of $59K to $104K. Those are not comps. Those are properties that have sold in the area (hopefully), but not comps. Comps are houses of similar build/style/age. Your “comps” should be within $10K of each other.
Second, appraisal doesn’t mean squat unless you know when it was done, who done it, why it was done, and who ordered it.
Third, this does NOT sound like a motivated seller. In fact, it sounds like an investor. He has tenants. He has a title company. He has HIS on contracts. Most important, HE is controlling this deal, not you.
Fourth, that makes you a motivated buyer. Hardly the position to be in if you are planning on investing.
Fifth, this is NOT a deal. Assuming the $95K is close to ARV, then your maximum offer should be no more than $66K
Sixth, if someone buys it from you for $78K, figure $2k for costs, $80K @ 7.5% 30yrs = approx $560/month PI. Add in $140/month for T&I and you have a total PITI payment of $700. Ask any seasoned landlord and you’ll soon know that your $100/month “cashflow” is actually costing you $$$ every month.
Seventh, (whew) and final. This is NOT a deal. It was worth repeating.
I agree with above. This is not a good deal and the investor…(yes he sounds like an investor) is controlling the deal. A good deal is where you say who, you say what, you say when and you say how much. If this is such a great cash flow property according to the “investor” what is he not keeping it? As an experienced professional, my guess is that he is in over his head and needs out. I would guess that there are some un-forceen issues with the property. I would tell him you have re ran the numbers and then give him an offer on your choice of contracts at a price not to exceed 65k. I WOULD FULL RECOMMEND A THOROUGH INSPECTION OF THE PROPERTY AND ALL MAJOR SYSTEMS. When a small time investor is out of cash and finds a major property defect, they often try to hide it and pass it on to another investor. $100 a month cash flow will most likely end up costing you $200 a month. As for a renter with a foreclosure on their credit, i say great. foreclosure are not peoples fault in this market with all of the bad loans made over the last few years. as long as they seem to have all other credit accounts in order or there credit was great prior to the foreclosure or recent credit issues and can prove income… go for it.