Possible deal? or HOLD out?????

Question

Hey guys, I have been following advice and not looking on mls websites for deals anymore, and came across someone who is in need of selling their home. Asking price is 18,000 negotiable. ARV is estimated at 40k with minor repairs. BUT before I do anything I will send someone on my behalf for an appraisal and a contractor for estimates of repairs etc. Because the seller told me it needs "minor"repairs, and obviously I wont just take her word for it before even seeing it yet. But does this look like a deal? And is there enough room for a nice profit and to get my feet wet. I am thinking to make it work I can get it for maybe 10-15k. Do I need to file for any building codes or dpeak to the town to fix this up, although they may just be minor repairs, or is that only if I add rooms, etc. THANKS! I can send a picture of the house if anyone wants to see and let me know what they think, with some details.

Jason Shaffner · Answer

MC,

I don't know if you would be lowballing her or not ... you know the deal and the area.

That being said, here is a qoute ... "If there is any doubt, there is no doubt."

Basically go with your gut.  If you're asking us about her walking on a lowball, than I think you know the answer.  You're lowballing her.

Thanks for keeping us in the loop.

Good Luck,

Michael Rossi · Answer

mc,

If I found a $40,000 house for $11,500 (that needed only minor repairs), I would have already bought it.  What are you waiting for?  Go look at the place.  Determine the repairs needed and the local rents.  If the repairs are low and the rents are decent, you can either pickup a bunch of equity and a monthly income or sell it to a local landlord for a small profit.  If you can pickup $25,000 in equity on this deal - find 39 more and you'll be a millionaire.

TC is absolutely right  -  you need to look at the place NOW.  If this is really a great deal, this won't last long.

Mike

Jason Shaffner · Answer

MC,

As long as this is a carpet and paint deal than you should be fine.

The larger issue with the money , as John put it, is that if there is anything significantly wrong with this house, like the roof or the windows, this deal could turn sour fast.

As for building codes and having to work with the town supervisors ... this all depends on where you are but unless your adding rooms, building a deck etc ... your should not need a permit.  Plumbing and electric should always be done to code.  Period.

There is a thread on here related to deal worksheets.  I'll try to find it and post a link.  It will help you put everything down on paper to see if the deal works or not and it helps you cover things you might miss otherwise.

Good Luck,

Jason

Mikey Cas · Answer

hey guys, interestingly enough I just found out...that the property is listed at $11,900, and found out the area is a declining part of town. This could be a red flag..she emailed me saying its 18,000 negotiable with minor repairs. Now I am having some doubts. The repairs could be far more than what she claims, and this property might not sell for a long time.

Mikey Cas · Answer

Awesome, great advice. Would offering 8,000 be a lowball offer? It would leave room to negotiate up to 10,000. Her asking price of 18k leaves 22,000 room for profit....LESS fix up holding costs etc. So if i can get her down that could make this worth it. I just dont want her to turn away the deal bc i lowballed.

N/A N/A · Answer

first you need to confirm how SOLID the value is per the $40k. then KNOW the exact costs/bid from your contractors (the sellers "minor" repairs quote means NOTHING - the estimate for repairs will tell the story).  and finally, get a contract with the seller if the costs are indeed "minor" and nominal. this way, you will lock in your margin if it exists.

-Vinh Le

Tom C · Answer

You need to look at the place. You are doing a lot of guessing. Is the house currently occupied? Whats the tax value on the house? Go look at the place and if its rentable or almost rentable, then grab it and rent it out for 350 a month.

Tom McGiveron · Answer

if it's a WINNER, as REI said - for 10 to 12k - you might consider other financing of the deal.  CC perhaps with a big limit on it.

that's IF IT'S A WINNER.

first - the number 40k - ARV MUST be a very solid number, meaning, are houses in that area going for this in less than say...120 days?

so it takes you a month to fix and then two months or so to get a buyer and close it.  you might shop around before, during and after for a pool of first time home buyers - marketing (cost) - this way you've got a pool of people you KNOW are looking and looking in this price range and area - if it rents well - see investors (rei clubs).

town issues - to avoid - just don't break down too many walls, make structural changes or change plumbing - fix plumbing yes, change plumbing (add a bathroom etc) - no.  you want to avoid C/o issues.  this requires INSPECTIONS - bad because they cost TIME and TIME equals MONEY (increased cost).

keep it simple.  make sure numbers are SOLID. simple simple simple.

talk to a good attorney who's meticulous.

work with a good realtor who does biz w/ investors.

Account Closed · Answer

WARNING

A deal this small is likely to be a loser if something goes wrong. Many times the costs of the materials do not fall as fast as house prices. By this I mean that the fix up costs if something major is needed could cost you a pretty penny and wipe out the profits. The same with the closing costs.

It might be a winner if you are on top of your numbers.

Be very careful about the financing. Many lenders will not originate a loan that is below $50K or maybe $25K. Hence you could have problems trying to finance if you hold. Buyers could have the same issue if you want to sell. Local banks will generally be a possibility as it is their local market. Check before committing.

If you do the deal get the seller to provide financing as it is likely to be less costly. It will also cause the seller to consider a discount for an all cash deal.

John Corey