How to get price down? First deal!

Question

Hi, i'm new to REI. I'm ACTUALLY going in on my first deal very shortly. I'll give you guys a quick rundown on the property, then something i'm trying to figre out as well.

The property is a 700sqft bungalow w/ full height, unfinished basement. It's in a central area of the city, close to downtown, with bus access a block away, close to all levels of school. Its a 2bdrm 1bth with an open kitchen/living/dining room setup.

The building itself is structurally in pretty good shape, its a standard two sided roof structure (i'm not good with the names yet) which a fairly simple layout inside. No water damage in the basement, no cracks in the foundation.

The area can support rents (in a comparable property) of 850-1000$/mo + utils. I spoke to two familys renting on the same street and my realtor has a rental six houses down. All the other houses are within 100sqft of this one.

It needs paint, new appliances (low end stainless)  in the kitchen, a tile counter top (diy) and to have the hardwoods refinished (diy also).

I put a conservative estimate of $10,000 into repair/renos and the current list price is $112,900.  Comps in the area come up from $139,900 to $154,900 depending on the level of upgrades.

Our market (Winnipeg, MB, CANADA!) went from hot hot hot, to not so much. It should pick up in the spring again.  The house was listed at 112,900 and has been on the market for almost 40 days now. I want to get the price as low as I can.

Any advice on how to aggresively but properly offer on this property so i can get the best possible price on it? Thanks in advance.

Corey Demuth · Answer

make an offer and let them know you're serious and that you really can't make a deal work for any higher, because you don't want to be associated with that category of investors who just throw out lowball offers like they're fishing with dynamite.
          
if they don't take it, move on to a more motivated seller... nothing is more frustrating or time-consuming, as a newbie in this business, than dealing with an idiot who has an inflated perceived value of their property.
          
good luck

*edit* also, you may want to offer them 80 on the first round, so that there is room to negotiate up to 87,900 as Jon outlined for you... everyone always want to feel like negotiating is some big compromise and that both sides gave something. others may disagree with this, but it's just my personal opinion.

as a digression, while working at a law firm I once saw a case where the opposing client had nothing and I mean NOTHING going for him but was trying to settle. so the lawyers came up with a figure and he suggested a lower amount, to which they of course said no. it turned into a huge argument and all he kept saying was that "in the spirit of negotiation" they should come down a little so that both parties would have conceded something.

In the end they came down 5%... so he took the offer at 95% which was frankly not a hell of a lot cheaper but clearly he just wanted to feel like he got a "deal" somehow. it's the same reason every price nowadays ends in ninety-nine cents, and macys has a "one day sale" just about every day of the year...

Diane Menke · Answer

Adam,
Why do you want to buy this house? Cash flow? Equity? Its cute?
Why does the seller want to sell? 40 DOM is not very high. Has the price adjusted yet? Over 100 DOM is better because the seller is more anxious - maybe.
Who will hold it? You with cash, the bank with a note? 
How much money are you putting in? And whats your bottom line ROI?
Info please.
Diane

Rod Marlow · Answer

I'm just entering my first deals and was reading this thread,saw some great replies..and lo and behold..no ending!..what happened Adam? Did you just move on to a different deal?

Chris A · Answer

I agree with the others that the description you gave does not explain your goals well.

Regardless, you need to better analyze the numbers before you jump into it.  Be sure to include costs for insurance, carrying costs while you are renovating, and more detailed reno costs.  At the offering price this house seems too risky for the limited return.  So you need to focus on how to justify a lower price.  This goes back to the numbers.  Calculate all of your costs, price in the value of your diy time, realtor costs, and then add in expected profit to find the highest amount you can pay for the house.  Jon's back of the napkin numbers look pretty reasonable to me but they might just serve as a starting point for your offer.  I'd be willing to go a tiny bit above those myself.

Brett Patterson · Answer

It depends who owns the property...is it bank owned, investor owned, trust owned? Based on who you are negotiating with will help determine a starting price...

Jon Holdman · Answer

As a rental:

$850 rent
$425 expenses (50% rule)
$425 NOI
$100 desired cash flow
$325 max payment
$48,850 max all in price
$10,000 repairs
$38,850 max you can pay for it

As a fix and flip
$139,900 ARV
$97,930 70% of ARV
$10000 repairs
$87,930 max you can pay for it
$20,985  best case profit
$13,990 realistic profit
Profit based on paying $87,930 and sticking to your $10K budget.

Calvin N. · Answer

Are you going to hold this as a rental or re-sell it after the rehab?  Give us more details and you will get some advice.

N/A N/A · Answer

Come on people! Theres lots of smart people here! 30 Views no replies! Gimme some advice.

How to get price down? First deal!

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