I was wondering if I were to buy forclosed properties REO’s I ,mean can I put up some earnest money to do my du…dil’s to see if the property is to my likings…Ive read this and that here and ther but would like some direct feedback from the wonderful members of this site. My plane is to use earnest money to tie up the property and do the numbers on it and if it will profit enough my dad is willing to join me for my venture but we will be using my grandmothers money…so if the property can be fixed and fliped and we split the profits 3 ways that would be great but I have to know what the projected cost to buy hold fix would be to propose a property to my dad. thanks a bunch and I’m glad you guys are here for us the new REI…
Rick
Generally earnest money is required to control the property while you do your due diligence. Remember, always put a contigencey in to the offer to allow you an escape and to allow for a refund of your earnest money. Try to convince the broker to take a minimal amount of money as earnest money.
Here are some of the conts. I would include in a contract…
1, financing
2, estamate cost of repairs if any
3, appraisal (ARV)
What other conts should i use when dealing with forclosures and earnest money?
If you are speaking of a contract to purchase, I don’t know why you would include fix-up/ARV terms in the contract except to try to obtain a better deal? I always include an inspection contigency based on my satisfaction-just in case.
Good luck
I would like an apprasail to know what kind of possable profit I can make before I buy… I read that you should know the most you will pay for the property and the cost of repairs, and last but not least the selling price before you ever buy anything…thanks
Rick
Work your numbers backward’s
225,000.00 sell price after repairs
160,000.00 purchase price
20,000.00 repairs
6,000.00 holding costs (I figure 6 months)
13,500.00 Realtor fees (if you use one)
3,000.00 Closing costs
_________
22,500.00 Total profit
** Note I always figure high that way I do not get upset when I don’t make that much.
As far as earnest money I always try to do a promissary note first!
Hope this helps and best of luck to you… Robb
That is true-you should always know the numbers. I thought you were wanting to know what to put in the actual contract. I must have misunderstood you. Work backwards is always a good way to go.
islander,
An appraisal costs $$$. You don’t want to go around getting appraisals on everything that you think you might want to buy. It’ll get expensive very fast.
Likewise, you don’t want to go around putting contracts on everything and then backing out of the deal. It won’t be long before no agent will deal with you anymore. Then what?
What you need to do is learn your market. That way, when you look at a property, you’ll have some idea of what it should sale for fixed up. Also, your agent (you do have your own buyer’s agent, right?) should also do a CMA report for you so that you’ll have their numbers to confirm your idea of value.
The same holds true for repair work. You need to know your market. The first few times, you might want to have a contractor/handyman or three give you quotes on the fixup of places. Have them give you detailed reports, so that you can begin to learn what it costs to remodel a kitchen or replace a roof, etc. After a couple, you should be able to walk through a property and get a rough idea of what it should cost to repair.
Once you have the above, then you can see a property and be able to make a quick decision on the spot.
As to contingency clauses: When dealings with REO’s, less is more.
The only contingency clause that you really need is a finance contingency. Sure, you have to be pre-approved before you make an offer, but if the property doesn’t appraise for what it needs to, the bank won’t loan the money. No financing, no deal. You get to keep your escrow money.
One question on your post. You say that you’ll find the deal and work the numbers and if it profits enough, your dad will join in, BUT you’re using your grandmother’s money. No offense meant, but exactly what is your dad going to be doing that warrants splitting the deal?
I mean, there is a whole bag of things that we won’t get into about mixing business and family. But just looking at this as a purely business transaction. You’re supplying the deal, you’re doing the legwork, and your grandmother is supplying the money. So where does Dad fit in?
Good luck,
Raj