How to make a deal with an REI

Question

I know I've posted all sorts of bizarre topics here, but I am researching so much, and desperately trying to find a good deal on a fix-up property in a specific school district to make my primary residence.

Here is my latest lead. I'll share how I got it, for anyone else that can use the info.

I noticed a couple of years ago that a house in a certain town that was in horrible shape had some official notice posted on the front door. The notice is gone, the place looks secured, but still empty. In the same town, a friend of a friend lost his house to foreclosure a couple of years ago, and the place still sits empty. Meanwhile, in the SAME town, there was a distressed home that was bought, beautifully redone, and sold for a nice price.

In talking to the local people there this weekend it was speculated that the same person owned/owns all three of these properties.

So, I got into the county tax maps on the internet, found the owner of one house, searched his name and found out that he was indeed the buyer of all three distressed homes. I also searched the recent sales on the county site that go back to 2001, and I know how much he paid for each of the empty properties.

I called this person and asked if they were interested in selling either of them "as is". They are! I am going to see both of them this weekend.

While talking to this person on the phone, and talking about our buying budget, they seem to think that one of the houses is "out of our budget". Now, considering what they paid for these homes, and what our budget is, they stand to make about 40k on one house, and 25-30k on the other.

Neither house has been touched as of yet, and I researched the taxes on them yesterday to see what sort of tax liens they had to pay off on each property.

So, when making a deal with someone like this, if their sale price of the house they offer is well above what we think it should be considering condition, area, and comps, not to mention knowing what they paid for each house, is there a tactful way to bring up knowing THEIR purchase price to help negotiate a deal on one of these houses? Or is this something that should be left alone?

Thanks for any advice you can offer.

Susan

Jon Holdman · Answer

Do you have any idea if the county's assessments line up with actual sales? In many places, they're wildly different. Sounds like you have some handle on the local market. You might be able to use the information on other recent sales to justify an offer. I don't think what they paid has much effect on what its worth now, but nearby, recent sales certainly do. They may disagree, and they may insist on a higher price. Sounds like you're doing the right things to find good deals. If these two aren't, look for another.

Jim Gordon · Answer

You can alway mention what they paid but that is irrelevant to the sale. The price is what they want to let it go for and if it is a good deal for you take it if not pass. You can always negotiate the price but if the want xxx and you are only willing to pay xx it is hard to make it happen.

Filkins Susan · Answer

So what would the pros consider the average profit percentage on a wholesale deal? Thanks :)

Filkins Susan · Answer

I thought this was just a bonus. I thought it was to have a home equity line of credit. I guess I just don't "get it" :oops: Oh well. We will be sitting down with a bank on Wednesday for all of the details. Has anyone ever gotten HUD or USDA grants or 1% loans for repairs?

Filkins Susan · Answer

HAHAHAH!! Ok Mike, will do :)

Tom C · Answer

To answer your question about the 80/20 this is usually done to avoid PMI. Remember PMI is tax deductable now, so other then lower your payment by a few dollars, it may not be worth taking on that higher interest rate. It sounds like you want to get more money to also do a rehab to take draws from. Wells Fargo is now offering this kind of loan and I believe most cases they require 10%. Good luck and just make sure you aren't over paying for the home.

Garrick Solberg · Answer

Wow, the REI is asking a large amount for his wholesale margin. Typically it's 6-11k, with a few I have heard getting 15k. No wonder the properties have sat vacant for so many years.

Filkins Susan · Answer

Mike, you are right. They were not on the market. This is because the guy buys distressed properties and turns them into amazing homes, and selss them for FMV. He does some of the most beautiful work I've ever seen. He is retired and this started as a hobby, but has become lucrative for him. I just happen to call at a good time as they are just getting ready to list his most recent project, then plans to do work on his own home, and planned to start on one of these two houses late this Summer. They are just "willing" to let one of them go. The profit margin might seem high, but he got the property that we are interested in for $17,000, and is asking $45, and said it was negotiable. I'm just so excited. This might be my dream coming true in the making right now. *hope* Thanks again, PROS! :D

Mike W. · Answer

In that case, Be careful while swimming with sharks... :D

Mike W. · Answer

Be careful while swimming with sharks... :crying: Make sure the price is right or move on. Don't force a deal...remember, you asked to buy them, he wasn't planning to sell them, otherwise they would have been on the market.