Is there something I am missing that would make this deal work?

Question

Hello everyone,

I am working with a private seller and his house he wants to sell. It is a 3 bed; 2 bath 1.5 story home; approximately 1545 sq. feet. Built in the around 1900. Large 12 x 12 shed but no garage. The owner has added a 2nd bath and has updated them both in the last couple of years. It has some updates such as central air and the wiring has been converted from knob and tube to a standard circuit board. Almost all the windows have been replaced. The roof is less than 10 years old and appears to be in good shape. It has steel siding. The things that concern me are there was some water spots in the basement but the owner says someone put a hose in the window well and left it running. The basement did not have a musty or mildew smell.  There is also a spot on the back of the house where some of the brick on the exterior is shifted down near the foundation. The kitchen would need a little updating, not sure about the floor under the carpet in the living room and dining room/ office area. May be able to refinish the floors.

Recent comps in the area have have sold for no more than $90k. The only house that sold for $108K was 3 bedroom; 2 bath; 2 car garage and also had a finished basement. the seller is asking for $78,000. Lowest he says he can accept is $73,000. Repairs (just from what I saw) would be $10k-$15k if there are any foundation issues it would obviously be more than that. Average rents in the area are $795. There are some homes renting for just over $1,000 and other renting for less $795. It doesn't meet the 2% rule or even a 1.5% rule. Based on rehabbing the property and a $90k ARV, I should be purchasing it at $25k - $30k. Nothing here makes me believe it makes a good rental or a good rehab. Is there something else that I am missing to verify my gut feelings here.

Thanking you all in advance for any ideas,

Micheal

Bill Jacobsen · Answer

Idon't know if there is a deal here.  I usually run my numbers quickly, tell the seller what they are and let him decide if we are close enough together  to go forward.

One option is to partner with the seller.  For instance, offer him $50,000 + 1/2 the profit.  You put up the rehab money and he gets paid after the house is sold.

Don't spend too much time thinking about this house.  Go to the next one.

Good Luck.

Bill

Shvonne C. · Answer

Partnering with a seller is an interesting concept, how would that work?  In this example of a $50k purchase prices and 1/2 the profit: would you split the profit after your rehab costs?  So for example $20k rehab costs, you sell for $100k - are you splitting $30k with the seller?

Micheal Rieves · Answer

@Ashley E.

I offered $45K and told him I was willing to go as high as $50k but he would not take that amount. He needs to get $73k at minimum. I explained my offer and he could not do it. If he could seller finance than I could make the amount he wanted possibly work. He is counting on someone seeing the appreciation possibility once the area is improved. I told him I never want buy by speculating on appreciation. It is a nice to have but nothing I would never hang my hat on it. I told him to contact me if anything changes. Thanks for the input.

Micheal

Ashley E. · Answer

Sounds like a walk to me Michael...the numbers aren't really where they need to be.

You could always tell him 57k is the highest you will go, and then when he refuses, tell him you're walking on it.

Who knows...maybe in a couple weeks he may reconsider if he doesn't have any other options...

Micheal Rieves · Answer

@Lee Smith He does not have a loan. He owns it free and clear. He was not willing to do any kind of seller finance. I understand what you mean by trying to force the deal. My gut was saying it did not work and it sounds like everyone else agrees. Definitely trying to have enough spread to minimize the chance of loosing money. Thank you for the advice.

Lee Smith · Answer

90k ARV, having you make 25% profit, 15k of repairs, holding costs, closing costs, etc.. My MAO(max allowable offer) would be $44,300.Does he have a loan on it? Maybe you can do a Subject-to...Don't force deals.. They either work or they don't... When you are new, you tend to try to force a deal to work, and you end up losing money.

Micheal Rieves · Answer

@Kenneth Hynes - Thanks for the advice. If he won't go any lower then I will have to walk on this.

Micheal Rieves · Answer

@Bill Jacobsen  Thank you for the information. I have never thought of partnering with the seller before. It won't work in this case but something to definitely keep in mind for the future.

Kenneth Hynes · Answer

Like Bill said  run your numbers and come up with your best offer.  If he doesnt go for it, move on to the next deal.

My quick numbers  would be   (ARV$90K - 20% ($18K0 =  72K before Rehan -  Rehab of $15 K  (go high with your estimate) =  $57K offer price.    see what he says .

Is there something I am missing that would make this deal work?

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