Am I being nickle and dimed or is this a good deal?

Question

Hey BiggerPockets, I could really use some help here with a property I put an offer on.

I put in a cash offer of 11,000 firm for a duplex that has an ARV of around 70,000 that will need about 40,000 of work and each side could rent for about 750 a month. The seller countered at 12,500 and I reminded them that I'm firm at 11,000. The seller then came back at 12,000 and wont accept less as they thought they could get 25,000 for the property and feel they're being more than reasonable.

At this point, the real estate agent we're both working through brought up that the Tax Assessed Value of the property is 47,800 and told me I would be getting instant equity at 12,000 and could pull some of that out to fund the rehad. I hadn't heard anything about the tax assessed value before and wasn't sure if that is what the home is actually worth? The problem I have is that this property is most definitely not worth 47,800. It hasnt been occupied in 25 years, has a damaged foundation, needs a new roof, needs electrical updated along with the central air units and furnace.

I guess my question is, is the tax assessed value the value I could borrow against or is it only used for tax purposes? Also, any advice on whether this is a good deal would be appreciated. This would be a buy and hold property.

JD Martin · Answer

1. If $1k makes or breaks a deal it's already on the bubble.

2. If they could get $25k from someone else they wouldn't take $12k from you.

3. It sounds like it needs more than $40k worth of work based on your description.

4. No, you cannot borrow against tax value. You can only borrow against market value, which is going to be calculated by an appraiser (or sometimes the bank if they desktop appraise).

Mark Fries · Answer

@Edward Robinson

Do the deal...$1,000 is nothing.... I probably lose a $1000 a month on stuff I don't even know...

Brant Richardson · Answer

The tax assessed value is not what you borrow against and is probably way behind with the place being in terrible shape and vacant.  The bank will send out somebody to do their own assessment and you will borrow against that.  However, in the shape it is in now getting a loan will be difficult, the typical investor would do the repairs with cash then finance it, maybe you could get a renovation loan to cover the rehab.  If you are comfortable with the area it is in then $1500/mo in rents on a $52k investment sounds amazing.  Are you really comfortable with your rehab estimates?  It sounds like a lot cold go wrong and if it has been vacant for 25 years then it is virtually guaranteed that a lot will go wrong.  I would never let a $1k difference make or break a deal but in this case my gut feeling is that you should walk away because of the rehab.

Pat L. · Answer

Now get it reassessed to drop the taxes. You could pick up the extra $1000 just on a re-assessment, we have on several occassions.

Edward Robinson · Answer

@Pat L. That's not a bad idea at all. May just have to do that

@Theresa Harris I sure will. The plan is to document my entire experience with my first house and rehab :)

Edward Robinson · Answer

I've been informed about the permitting needed by the contractor I'm going to be using. There is a lot that will need to go into this place, but that's all been figured into the budget.

As for whether I'm going for it, I went ahead and agreed to the 12k. Now I just need to come up with the money @.@

Tanner Marsey · Answer

It’s 1000 dollars. If you think it’s a good property that will be a money maker for years to come give them their 12k and don’t think twice.

Theresa Harris · Answer

@Edward Robinson  At the end of the day, you can make up the $1K.  Good luck with the renos-share the before and after photos.

George Munoz · Answer

Do it man! you will make more than 1k once the house is fixed and cashflowing..

JD Martin · Answer

It's not stupid to just assume the mechanical need replaced; if anything, it gives you more breathing room if you find out otherwise (unlikely on a place that's been vacant 25 years). You should consider the permitting process wherever this is, because it's entirely likely that everything mechanical will end up having to go through a new permitting process more or less the same way as a new build. In my city, for example, once electricity has been disconnected from a unit for 12 months or more an entire new electrical inspection is required before you can get utilities turned on. That means anything that would have been OK if it had been left in service - old knob and tube, for example, that wasn't disintegrated - will now have to be changed out. That's where I am. It may be different in your locality, so you should look into what is involved in permitting, as that can add a lot of complexity and time to any project.

Am I being nickle and dimed or is this a good deal?

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