Yesterday, a potencial customer calls me saying that he got a property for sale. He told me that he bought the property in 1977 and doesn’t have any loan on it (I check Title Company and effectively doesn’t own anything). He’s been living in Phoenix, AZ for the last 3 years and got this property in California (in a very nice, fancy area) and totally vacant. The property is listed with RE agent in the MLS for the last 70 days; however, he never mentioned that. The property is listed for $729,000 5/2.5 2,343sq Ft. I went to the property today and the only problem is that is a little down grade, I mean needs a modern kitchen, bathrooms, carpet and paint (a TLC) caused by the normal wear of 30 years. It has all fixtures from 1977, but the house is in excellent physical conditions no damages at all. I Think in order for me to upgrade this house I need to spend $50k. I ran the comps and the FMV is between 770k to 800k. Finally the guy told me that he’s open to hear any offer and also to carry back the loan or part of it.
I like to know how I structure the multiple offers, knowing that the price is high, he doesn’t owe anything, it needs some work that can take around 2 month to get it done, and than get a buyer (knowing that this is an expensive area), also I’d like to know how I get rid of the RE Agent. I don’t want to get a loan under my name. I really appreciate all information you can provide.
First off, if there is no loan then there is nothing to take “sub 2”. To take a property subject to the exsisting financing would require there to be financing in place, there isn’t. This is a good thing. If the owner is willing to owner finance as you stated, then this is also a good thing. You don’t need to worry about putting any bank loans in your name because he will be the bank, perfect.
It would appear that the house is listed at or near FMV (assuming your comps are correct). You say the house has been listed for 70 days on the MLS. Has it not sold because the comps are actually lower or is it because of the work it needs to be updated? It would be essential for you to be able to answer that question. What part of CA are you in? I’m in San Luis Obispo County and depending on location it could take anywhere from 3-6+ months to sell that kind of house in the current market. It is highly unlikely that you would be able to rent the home to cover the mortgage and consequently will have a difficult time finding a tenant buyer if that is your intention.
I’m not saying that you don’t have a deal here, in fact you may have a very lucrative deal. Just be heads up to the obstacles of selling such a high priced piece of property, especially in this market. Buying the property at a low enough price to allow you to make upgrades and still price the home below market is going to be the key to your success.
On a property in this price range you could increase you offer up to 80% or so of ARV and still have plenty of room for repairs and profit. Personally I would try to get the property under contract and then wholesale it to another investor or even try marketing to retail buyers looking for a fixer. When you make your offer make sure the seller understands that you are not a retail buyer and that for you to make a profit you need to get the property at such and such a price. Also, point out all the needed repairs from the properties age and the fact that it has been sitting vacant for so long. Then, try to negotiate the best deal you can on the owner financing. There are a lot of ways to approach this deal. You can try to negotiate a delayed payment plan with the owner in which he gives you a couple of months to fix up the property before you have to start making payments, or you try to do a straight option agreement with him. In this case you would do an option contract, where the seller gives you the exclusive right to buy the property for a set period of time. You give some amount of a non-refundable earnest money deposit (whatever the two of you agree on) and during the the option period you market the hell out of the property and try to find a buyer for you contract. This would be an excellent way for you to get into this deal with little risk or money. As I said there are numerous ways to approach this deal, these are just a couple ideas.
The bottom line is to remember that a property in this price range can take a long while to move unless you have buyers lined up that are looking for these types of properties, meanwhile they are sucking the life out of your finances. Go in with your eyes open and get it done.
Finally, as for the realtor, you need to find out if the owner has a contract with the realtor and what it says. The realtor has most likely spent time, money and energy marketing this property and will generally not appreciate youu trying to push him out of the deal. Talk with the owner and try to work it out with the realtor. Usually, you can all come to some agreement. Well, that was way more than I intended to write but I hope it helps. Good luck and let us know what happens.