My first offer letter - deal analysis

[Ryan Braman]

Just made my second off-market offer, first offer letter. The first time I went over to the seller's house with a bunch of spreadsheets and walked them through it for about 30 minutes..this time I'm using a letter and sending via email. Context is, they've already had an appraisal that put the home value at $88k, it was the grandfather's who left it to his three elderly children, who picked one granddaughter as the executor. She told me a realtor had suggested she start at $88k, but she was okay negotiation on it as long as she sold it for 'market value.' Please let me know what you think..Thanks!

Dear Ms. XXXXs,

Thank you for letting me make an off-market offer on your family's home. My offer for XXX Massie St in Lexington VA is $66,000. I plan to renovate the home and rent it out through a local property management company and this offer is contingent on obtaining financing through Cornerstone Bank, which will take from 30-45 days.

While this offer is probably lower than what you would ask for if you were to list XXX Massie, selling it to me off-market provides the following benefits:

No agent commission - You will save anywhere from $4,000 to $5,000 on agent commissions.
No contingencies besides financing - I am buying the home as-is. Even if you list the home in as-is condition, many buyers will still try to negotiate home inspection/repair contingencies into the contract, wasting your time and holding up the sale..I am offering a pure as-is purchase.

Relatively quick financing - due to COVID and the massive numbers of small businesses seeking loans in response, many lenders are overwhelmed and delaying lending actions. I’ve been pre-approved by Cornerstone for this amount. The 30-45 day timeline is what they require to go through the actual lending mechanics.

Security - there is significant upheaval in the real estate community due to the market uncertainty caused by COVID. The expectation is that late fall will be the earliest that we expect to see some stability and more predictability, with the possibility that these conditions extend well beyond. By selling to me now, you are offloading that risk to me and you don’t need to worry about future market drops and their effect on your ability to sell the home.

My requirements for a property include two primary factors, it must return over $100 a month in net profit, and that net profit must represent at least an 8% return on any personal cash that I’ve invested. I came up with the offer price through the following analysis:

Purchase $66,000

Renovation +$60,100

Closing/holding costs +$8,300

Total costs $134,400

After-renovation financed -$116,000 ($145,000 home value * 80%)

Personal cash expenses $18,400

Anticipated rent $1,250

Monthly mortgage -$678 ($116,000 at commercial terms - 5% and 25 yr)

Monthly operating costs - $448 (management, insurance, taxes, maintenance, etc)

Monthly cash flow $124

                        x12 months

Annual income $1,488

÷$18,400 (personal cash invested)

8.1% return on investment

Thank you so much for your consideration and allowing me to look at, and make an offer on your home. Regardless of you and your family’s decision, it was a pleasure to meet you and your mother and I wish you both the best!

Respectfully,

Ryan Braman.