There was a fsbo i ran by the other day. 2 fam on a nice street with almost all sfh’s around it. In an area of homes that go for around 160-190K. Lots of landscape, both front porches- upper and lower need to be replaced (falling down) and the interior is a gut. Lots of wall paper to remove, all new flooring, nothing in kitchens. The roof if also questionable. Basically no one has lived here in a while. I checked online and I see unless there is a home equity loan nothing should be owed (sold 30 years ago for $1) and the assessed value is $145 including land. Now I was thinking with the work needed the guy shouldnt be asking more than 75K at best. I call and he states he is looking for 145K and he knows its an investor only unit. I tell him I didnt get a good look at it because it was night and I would call him back to let him know what I thought. I cant believe he thinks he can get that much. What would be a good next step? Should I just make an offer and see what floats?
If it’s paid off and has been sitting there for a while, he may not care. This means no motivation which usually mean no deal.
You can ask him how he arrived at his asking price?
And you can talk to him and ask questions that you “know” the answer to…such as when was the last time the roof was replaced, windows, plumbing, electric, kitchen, bath, etc…(I don’t know how old it is). That gets the conversation on how much work it needs. Then you can tell him you “usually pay around “X” for a property in that condition” and then ask him if that is an amount he might consider…
make your “X” embarrasingly LOW (for you)…like under $50k…and see what he says.
Good tips thanks!! I really was shocked and almost just said “your crazy” but didnt want to burn a bridge on it. Maybe he is just throwing #'s out there but those are great ideas to bring out a true amount. Thanks.
I cant believe he thinks he can get that much. What would be a good next step?
Move on! There’s no deal here. I’d just tell him to call you when the price gets to $75K or whatever you’re willing to pay.
You have to consider several variables in making your offer to him as well.
How much will the duplex rent for?? You need cashflow, so lets say with both sides rented you generate $1400 a month (700 per side). Then you need to pay your offer on the monthly income to be able to debt service the loan and have cashflow. Now I do not know the property tax or insurance cost in your area. So figures will be rough. ONe calculation method i was taugh a long time ago was to this way,
GMR (gross monthly rent) x 7 (GRM - Gross rent multipler which your realtor should know but 7 is the avg used) x 12 (12 months in a yr)
GMR x GRM x 12
1400 x 7 x 12 = 117,800 at 8% I/O with 100% financing gives you $785 a month payment . Add $250 a month for taxes and ins = 1035 a month
This becomes a ballpark figure to see if you have wiggle room and can negotiate the deal.
I would also suggest you want the rent collected to equal about 1.5-2% of the monthly rent. So again 1400 a month should mean a sale price in the 70-100K range. In this formula sale price lower…
Considering it is a rehab job you need to add 10% to the rehab cost for overages. You need to meet him out there with a contractor, tell him you want to check out the place and get an estimate on repairs so you can give him a offer… Subtract cost of rehab in the offer…
Ex… Based on market rents, if home should cost no more than $100K to turn a decent profit each month, and the home will cost $20K to rehab, your purchase price should be no higher than $80K ,so offer less than 60K. Also what will the home appraise for is a key issue as well. Is it worth 145K, then 145Kx70% = 101500, the most you should be paying with rehab cost in there.
Also if he declines offer, tell him the offer is always open and you have cash. Even if you do not have cash, do not tell him. When he calls you in 2 weeks or 30days, you can talk it over again and tell him you need bank financing since cash went into another deal.
Yrush good stuff, thats what I was thinking when I thought 80-100K. Your rents are pretty close too lol. Property Manager I think you may be right but will let him know my figure and tell him to call in a few months. The funny thing is he even said “its for an investor to buy” and I almost blurted out NOT AT THAT PRICE :shocked