Hi. I got an email response from a yellow letter that I mailed out on an ugly vacant house. Here are the details of the property:
ARV (comps): $400,000
Est Repairs: $20,000
It’s listed for $249,000 by a realtor and the realtor sent me the email saying they are entertaining any and all offers. He asked me to make him an offer?
Normally without a realtor I would take this deal. But I am dealing with a realtor and I have never done that. My terms are very specific…little to no deposit and all cash with 30 day close with double closing to end buyer. If you say I should call the realtor back what do you recommend I say? I find down here there are few realtors that understand this side of investing and they don’t understand all cash, hard money, double closing. Plus he is going to want a commission. Does that work with these numbers?
If you make an offer even of full price, if your comps are correct, you’ll be in good shape…
Conventional wisdom says Max Offer = (ARV X 70%) - (Repairs + Holding costs), so:
$400K X 70% = $280K - $20K in repairs = $260K…
The Realtor has a contract with the seller, probably for 5 or 6% of sales price, so that comes out of their proceeds…
What’s not to understand about all cash/close in a week? The onl thing that he may not undestand is the little/no deposit…
Actually it’s the deposit they don’t get. They usually want a $5,000 deposit and I usually ask for a 30 day close on the agreement. I let them know that while I put down 30 day close I usually can get the money in less time than that and that’s the part they get all creeped out on (in my experience). Maybe I am telling them too much. I would be in this to double close to an end buyer…I tell them my intention to double close to an end buyer. That’s when the “huh” and questions start to roll.
So don’t tell them you are double closing, they don’t need to know what will happen after the closing. Just concentrate on getting them to their own closing. Try offering a lower deposit, tell them you’ve got other deals working and you don’t want to tie up that much cash. What is your expected sale price to the end buyer? If I were you I’d offer more like $220k and see if they bite. Do you have a list of buyers lined up for this one?
Rich, That’s a good strategy. I think I will go low on the offer as you suggested.
I do have a buyers list that I market to…I have not started anything on this property as I don’t have a contract yet and one time I marketed without a contract which ended up never materializing and I ticked off some people on my buyers list because of that. Live and learn.
Also I project that my offer to my end buyer will be $265,000. I will offer the seller $220 and play with that number. I have some room to move starting there.
If you’re paying cash, don’t talk about your double close or the “end buyer.” As far as the Realtor is concerned, YOU are the buyer. That’s it.
If you’re writing your offer all cash, though, they may want proof of funds. Do you have that?
Also, if you are not represented by an agent, the listing agent should be willing to take only half of the commission, making your offer more attractive by 3% to 3.5%.
I don’t have proof of funds because I don’t have funds. A homeowner never asks me for that and I have done double closings successfully because of that. Usually when a realtor is involved I start getting questions such as proof of funds, inspections, high deposit, etc. which is why I try to stay clear of realtors. This deal turned my head because of the numbers which is the only reason I am entertaining it.
If it were me writing the offer I would offer 220k, subject a 10 day inspection period release, I would try to minimize the earnest money up front, but if it isnt possible, I would make the earnest money due upon acceptance of the inspection at the end of the 10 day period. That way you can get your buyers through during the 10 day period, and then use your buyers non-refundable deposit to cover your deposit, and if you cant get a buyer who wants the home during 10 day period then you can terminate the offer due to inspections.