Should I be ballsy? How much to offer?

[Edith TenBroek]

I looked at a house today. It's a 1200 square foot classic rectangular ranch house.  Three beds, one bath, very simply one story layout.  It was built in the 1950's

The biggest problems are foundation work, new heating and cooling, and windows. The roof looks good, and hubby will do the windows.  The walls are straight and smooth.  The basement has a little moisture, but nothing a dehumidifier won't cure.  We might look into a sump pump. Vinyl siding needs a power wash.  Inside needs paint, flooring, paint the cabinets (real wood!) new counters.  We will gut the bathroom but it's small and only needs basic fixtures.  Electrical looks good.  Needs a full landscaping, but that's my passion.  I'm just itching to get my hands on that big yard!

It's in a small town very near us.  It will rent for 700 - 750.

I think if we are careful we can get it rent ready with a fixed foundation, new heater and air, windows, and all the cosmetics for around $30,000. Cosmetics and windows will be handled by us.  Furnace, air, foundation, and plumbing in the bathroom will be hired out. 

It has had no showings in 2 months.  It's been on the market for about 10 months.  The realtor said she would write ANY offer.  The sellers want it gone!   It has dropped in price from 50,000 to 20,000.  Do you think it would be too ballsy to offer 10,000 cash with an inspection contingency?  I think I can get the foundation guy in on our second walk through.  Might bring a contractor too, just to help identify other issues. But I want a full inspection if possible.  

They say if you aren't embarrassed by the offer, it's too high!

[Simon Campbell]

Put yourself in their shoes considering their motivation. If you would be insulted, then offer a little more. Worst case scenario, they get pissed and don't even counter. Then you come back with a higher offer. Their less pissed or even happy and you close.

But, I'm a hard numbers kind of guy. At $20,000 with $30k remodel and no mortgage with rent at $750 and 50% set aside for expenses. You are looking at a $375 cash flow each month and a cap rate of 9%. Very good.

If you get a personal loan or a HELOC off another property and finance 80% of the total costs (purchase and renovation) for 15 years at lets say 5.5% interest, you are looking at $48 in your pocket at the end of every month. Not so good.

Under the loan scenario, offering $10k, brings your monthly income to $114. Just over the $100 per door minimum.