Is my skepticism holding me back?

Question

So I'm very new to the game. I haven't completed a deal yet. I'm analyzing constantly and think I found a decent deal. The numbers can work with the use of private money (family friend). My hesitation is "Why hasn't another investor scooped up this property yet?" It's been on MLS 110 days. It's a small row home that needs about $50k in work (listing agent's number, I'd definitely confirm). And my reno would be a bit less because we'd be doing some ourselves. Listed at $80k but my agent says the seller is HIGHLY motivated (older, in the hospital). I want to offer $45k if the $50k reno is accurate. ARV $130k and the area has been growing. ie 50% rental growth in 2 years. Current rent around $1300. So my question is...

"Why hasn't another investor scooped up this property yet?"

"Why hasn't another investor scooped up this property yet?"

JD Martin · Answer

I haven't really run your numbers to dig further into it, but I will tell you this: if you know your numbers, and trust your numbers, then go with your numbers. But be sure you know them. There's no way to know for sure why something hasn't sold. I have told this story before, but I once bought a house that had sat on an auction site and on the MLS for almost a year. Couldn't figure out any good reason why no one bought it so I finally checked it out. It smelled bad of cat piss inside. I bought it for a song from the bank and, $1500 worth of hardwood floor sanding and sealing later, the smell was gone. It has been one of my most profitable houses and the appreciation value is now almost 3X what I paid.

I will say this: the longer something sits, the more people are out there thinking "This must not be a good deal or someone would have bought it". The only way you know for sure is to do you homework, know your numbers, and put eyes on the prize.

Paul Choi · Answer

Account Closed

At LP $80k and reno $50k and ARV $130k, the numbers just didn't make sense. Alot of investors probably just glanced at it, see that it didn't work, then moved on to the next deal.

Those that went to the next step and made an offer, the seller probably balked at the low offer and rejected. Now that time has passed, maybe the seller is realizing that the LP is too high, or needs the money more urgently now.

There are investors who target expired/old listings like this one.

Have you checked to see if there are any inspections or reports on file? ie, major foundation issues, pest, etc.?

Account Closed · Answer

@Thomas S. Yes it could rent for $1300/mo and grow over the next few years easily.

I just heard back from my realtor and they don't want to go below $60k. They were offered $45k and $20k unseen and turned them down. At least now I know. On to the next one...

Thanks everyone for the advice.

Jody Newman · Answer

I think were NOT supposed to give the truth.   ONLY you go girl S are allowed.

Andrew Johnson · Answer

Account Closed I've been in your shoes before, the best course of action is to make the offer and move on.  Sure, there's a 90%+ chance you'll get turned down.  You might not even get a counter.  But at least you'll have made the offer and it won't be rolling around in your head anymore as a "potential".  Not to mention if you do get a counter it might be at $55K or $75K.  One means you're close and one means you know you're 99% positive you're wasting your time.

Andrew Johnson · Answer

Account Closed Just two boring comments:

1.) Yes, you should be skeptical if there's a property that's been on the market for 110 days.  I'm not like most people on BP in that I think that the REI market is pretty darn efficient.  If there's something on the market that's gone stale it's for a reason.  However...

1a.) The reason could easily be that the property is worth $45K given the time and money you'd have to put in a renovation.  Hospitalized or not it's a tough emotion ask to tell a seller to accept an offer at 56% of asking price.  So of course it's going to go stale.  I can't tell you how many properties I see just get pulled off the market that never actually sell.

2.) I've yet to come across an agent that doesn't say "the seller is motivated" or "just put in an offer and we'll see where it goes" or some variety of those things.  I've had a situation where the seller was in the hospital and it ended up being achingly long in terms of the offer process (that ultimately went nowhere) because...well...the seller was in the hospital!

Paul Choi · Answer

Account Closed

Yes, the agent should be able to get you the reports

Joe Villeneuve · Answer

You have 2 questions stated:

1 - Is my skepticism holding me back?

2 - Why hasn't another investor scooped this one up?

I think the answer to both questions is the same...and this isn't a criticism by any means.  This is nothing more than an observation.

Answer:  It isn't your "skepticism" holding you back, and the reason why other investors haven't "scooped up" this property due to a problem with the property.  What is holding you back, and the reasons for the property still being on the market, are both due to your lack of knowledge...specifically with Market Analysis...the only really important "analysis" a REI must know.

A greater knowledge of Market Analysis would either make you less skeptical, and/or tell you why the property is still on the market.  Here are some important information you need to know about this particular market.  This info alone may provide the answers to both questions:

1 - What is the average "sold comp" for all the other properties sold within 1 mile of the property in question?  Keep in mind these "comps" must be the same (or close to the same) house..ie...within 10% of the sq ftg of the property in question, ranch = ranch, 3 beds = 3 beds, etc...

2 - How long were the properties on the market, at the price they sold at, before they were sold.  This doesn't include the time these comps were on the market at the wrong price.  That doesn't matter.  You're trying to establish how long it would take to sell at the correct price.

3 - What are the other properties "for sale" in that same area, that are the same house?  How long have they been on the market, and what are they listed at?

Combine the above info, and you will have a mini-market analysis, that should give you the answers to both of your  questions.

Anthony Gayden · Answer

Not take on any debt? Buying vacant land?!?!?!

I don't think this is good advice at all.

Thomas S. · Answer

Is it possible that the market rents in the area do not support a property valued at 130K. Are the rents at a minimum 1% of value.

Is my skepticism holding me back?

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