Hi,
Here is the scenario:
Found a house for sale in a nice neighborhood - FSBO. Called to inquire and the gentlemen who answered said that this was a tear down house.
Need advise on how to proceed on this one, being that this would be my very first deal.
Any insight would be greatly appreciated.
Thanks
This is odd. You found a ‘tear down’ in a nice neighborhood? Really?
What are the comps? What is the value of the lot?
Many of my deals have been described by sellers and buyers as tear downs. Fortunately I wud find a buyer that thought differently.
I’ve recieved some insane profits on these junkers. and some were in nice older neighborhoods.
Chances are the seller is thinking of selling just for the value of the lot. I would go in and explain that it will cost up to 15-$20,000 to remove the structure and that nobody is buying empty lots now, construction loans are difficult to get, you can buy a home much cheaper than you can build a new one etc.
Run, don’t walk over there and get this property on contract for the lowest possible price.
Then your ready to market it aggressively and get it sold for 15-30K in profit.
I guess “nice neighborhood” is a relative term! :biggrin
Thanks for the advice. I am also thinking that the seller is looking for lot value. It is located in an older neighborhood within an affluent zipcode that is being “upgraded” with homes, say in the 450K to 600K range maybe more. I am researching comps and potential lot value now.
Once you’ve got those numbers/comps, you’ll know where you need to be on the price.
It’s ‘not’ just lot value you want to take into consideration.
It’s the ‘lot value,’ plus the cost to create the “lot.”
It’s NOT a “LOT” yet. It’s a lot, with an uninhabitable structure on it, that costs a bunch of money to remove.
Never mind the permits, federal and local environmental hurdles/regulations to meet/overcome, legal/proper utility disconnections (water, electrical, gas), grading, insurance coverage.
Like Rando said, it’s expensive to ‘tear down’ a house.
Hi,
It's not only lot value but future cost of new development of a custom / semi custom home. Typically a tract home builder will pay roughly 15% of future retail sales value for lots, while a custom home lot could be of more value to a retail owner building a custom home for owner occupied use.
Keep in mind with homes older than 1978 that asbestos, leaded paint and lead plumbing connections can be present, you can’t get a demo permit until abatement has been performed to remove contaminates from the structure. Like Jay said below your environmental compliance can be expensive.
If you make financial projections of the costs of demo and then add 10 to 15% for a contingency factor you will know what the real cost will need to be minus your profits for the tear down and subsequent sale to a end buyer.
Make sure you don’t over pay for the area as it is more likely a spec home builder would be your buyer versus a family looking to buy to build a custom home, the spec home builder will need to get the lot within acceptable cost ratio to build and profit.
Good luck,
GR
Happy Memorial Day,
Thanks for all the responses. After researching the property here is what I came up with:
Last sold in 2004 as a quit claim for $265,000
Comps range between $310,000 to $370,000
land value is $112,600
total value of house + land is 230,000 but assessed value $92,000 (based on assessors site)
In addition, while creating my buyers list. The first person to respond to my ad, may be interested in this opportunity. However having trouble coming up with a number so that I don’t leave money on the table.
so if I took the assessed value 92,000 - 20,000 = 72,000 x .70 = $50,400 max end point
I am thinking starting point $35,000.
Is this rational thinking or am I missing something?
As a side note, where can I find some examples of contracts?
Thanks in advance.
What is the seller asking for?
That’s your starting point.
“Assessed Values” means squat. Those are never reliable as market value comps.
Assuming that your source for a land value of 112,600 (suspiciously specific) is correct, that’s the number you work from.
Every deal is better/worse than the previous deal, or the one to come. It’s hard to think in ‘ranges’ of profit percentages when you’re new at this. Instead we get pretty rigid on the numbers; not taking into consideration that not every deal can be a home run.
If we HAVE to hit a home run every time, we’re gonna do a LOT fewer deals.
I’m not saying that you shouldn’t try to hit a home run, but don’t let a base hit be a deal-killer.
That all said, there’s innumerable ways to negotiate with a seller. Of course, any strategy works better when the seller’s desperate and signs his name with a crayon.
Meantime, you’ve asked the seller what he wants, right?
If so, you say, I can give you this much (holding arms out ‘that far’) in cash for your property.
The seller calls you a ‘low-balling s.o.b.’
You say, Mr. Seller, I am a low-balling s.o.b., but you’re missing the point. You have a hell hole that you said was worth “lot value.”
Well, here’s what lot value is to me… And this is what’s it’s gonna cost to actually create the lot. And this is what I can offer you today for cash.
The seller says, I’m not selling for that cheap. I can get more. I’m not insane.
You say, that’s debatable. Anyone holding on to this hell hole, at this price, needs some professional help. [OK, don’t say that.]
You actually say, I’m sure you could Mr. Seller, that is if you removed the dead body from the freezer, put the kitchen back in, removed the concrete from the toilet drain, replaced all the broken windows, hauled off all the trash and debris, and brought the house to insurable condition.
The seller says there’s no concrete in the toilet, and the windows aren’t broken.
You say, well, they will be. Trust me (insert evil laugh).
You add that it could takes weeks and months to fix up the place, and/or wait for a buyer who’s willing to tackle this job, but you could have your cash in a week instead.
Mr. Seller, which do you want? Cash now? Or headaches, babysitting, vandalism, theft, and waiting …just to get a couple more dollars?
That’s my take.
===> Here’s to all those who sacrificed for us, and helped make sure we could continue pursuing life, enjoying liberty, and having a chance at success.
Thanks. Finally heard back from the seller he is asking $320K. The lot value came from the state assessors website (GA). I am a thinking of offering $275K.
Also any recommendations on how to handle another investor who wants to co-wholesale? He states he already has a buyers list ready.
Appreciate all the feedback thus far.
Hello,
My name is Cameron and i live in Columbia, Md. I would be interested in knowing, that if i have very lucrative residential deals for investors in the state of Maryland, would i be able to present them to you? please respond.