Buying the home you've been renting (seller financing)

[Patrick Fraire]

Greetings Bigger Pockets fam. I'm a college student who is about to graduate in 2 months and start working full time and making a salary of 70k annually. 4 friends and I currently rent a 4 bed 2 bath 1700sf single family home in Diamond Bar, CA. Our landlord told me he is selling the home. It is in extremely bad conditions. We have rented the home for three years and he never stopped by to check on it. Not once! It was in bad condition when we got there and it's not any better now. For example two mushrooms have grown in the bathroom there is a treehouse that is on poured footings that is falling apart. The ceiling is cracking and not to mention the cabinets and floors are all outdated. This place needs some serious rehab. With that being said this home is in a very nice neighborhood. Also right next to a university so very attractive by and hold considering the rent we pay $2500/month. Also I believe the 4th bedroom was an unpermitted addition to the home because on public records this home is listed as a 3 bed 2 bath. Anyways I want to flip this house. I told the landlord I want to buy it and he said he'd like to help me out and sell it to me. I told him my financial situation and he said he'd be willing to do seller financing. Here's the problem. He's set on the price that zillow estimates he home is worth. Which is WAYYY HIGH. Zillow says $625,000 and no house in this neighborhood has sold for over $600,000 in the last two years. Plus it needs a lot of rehab. He says he wants to list it at $580,000. I told him I'm interested but that price is out of my range. He asked how I would buy his home and I told him I could borrow money from my family for the down payment. He said to talk with my family see what I can get for a down payment and to call him back tomorrow so we can negotiate. My question is how do I talk him down to a reasonable price on this. Should I just wait for him to put it on the market so he can see it's not worth as much as he thinks. I mean this home is worth 580,000 after about 50,000 in rehab. At least! And he's asking that in its current condition. HELP! How do I sweaten the pot for this guy so I can still profit on this?

[Clay O.]

Hi @Patrick Fraire Zillow is normally way to high on their estimates, in my opinion. This is how I would approach this opportunity. 

 He needs to see comps in the area. You can either have a real estate agent print these out for you or you can go to zillow and at the bottom of the listing for this address is a section called neighborhood or prices in my neighborhood. You can see what has sold close by that is approximately the same size home.  I would print these out and show him what houses are selling for in the area.  I would also explain that to get top dollar that he would need to spend 50K to update the home and fix any issues. 

You really need to run the numbers and do not get emotionally attached to this home. By the numbers you show, and taking into account the 70% rule you should pay $371,000.00 for this home. 

If the numbers don't work then walk away!! 

-Clay