Why I'm Pretty Sure This Deal is Over

Question

Don't get me wrong, I want this house but I'm pretty sure my offer will not be accepted.  Here's the deal:

Seller is asking 68k for a 3/1 ranch style in a decent area of Richmond Va.  I don't see how this place can get financing, it's in pretty rough shape so the deal has to be cash, thus my competition are other investors.  ARV maxes out at 105k but realistically is in the 90 - 95 range.  I estimated repair costs at 20 - 25k.  Using the 70% rule brings me to 28 - 33k.  I thought that a little low considering they want 68.  So I offered 35k cash with a quick closing.

They have a few offers already so I'm waiting for the obligatory "best and final" notification from my realtor.  Richmond is thick with investors these days, lots coming from further north where deal flow is drying up.  Many are rookies and are so eager to cut a deal they are making the mistake of buying too high while also underestimating the repair costs.  I suspect that is what may happen here.

So what's the answer?  How do I build my business in an area I know and like to work in (I'm a licensed contractor)?  How do I avoid competing with the deal cutters and slash and burn type investors?  I think the best answer is I can't, fully.  There's always going to be competition.  But I'm starting to wonder if using the MLS to find deals is the most effective strategy.  It takes a lot of time to keep up on the listings, go and see the properties, run the numbers and submit an offer quick.

I think it's time to develop a marketing plan.

John Hamilton · Answer

Move on. Queue that fat lady.

Here are some thoughts...Pros might have other sound advice.

1. You should bandit sign, flyer fly, yellow letter and do some internet marketing to get the deals you need. MLS is only for suckers paying full price. Unless you're a killer negotiator.

2. Network with other investors as the rehab partner if they fund and split profits 50%.

Both of these strategies mean the deals come to you and you cut the competition down a bit.

Larry Turowski · Answer

@Adam Stanton it is very difficult to find flips off the MLS. You can find buy-and-holds, but flips are much more difficult, though not impossible. It's not that other investors are cut throat. It is usually that they pay too much. Or they do the work themselves so they have a different set of economics.

At any rate, you are correct. This is probably a dead deal.

Adam Stanton · Answer

They actually countered with only 1000 off original asking price.  I sent back the original offer of 35k cash and took @joegore advice and added the repair cost breakdown.

I have another buy and hold deal in the hopper once this cash deal dies.  After that I'll be getting smart on marketing.

Appreciate all the feedback.

Dev Horn · Answer

Dude, you gotta start marketing for motivated sellers, direct to the sellers.   It's fine to watch MLS and bid on deals but it's you and 100 other people who got the same exact info.  When you market to sellers, they often just contact you or perhaps a couple of other investors.  That's where you MUST be.  You will not find a sustainable flow of deals on the MLS.

Troy Owen · Answer

If you want to use the MLS you have to submit more offers.  It will require a bigger time commitment and there will be a lot of rejected offers but someone will say yes.  You also need to do some marketing (direct mail or adwords, etc.) and make sure everyone you know is aware of the fact you are buying houses.  Also you could can call other wholesalers and buy deals from them.

-Troy

Brian Rhodes · Answer

@Adam Stanton I think you have answered you own question in your first post and @Larry Turowski helped solidify my thought. Trying to get deals of MLS is the easiest way that any investor has which thus brings more competition making it tougher to buy. The numbers don't lie and will want to probably be in the low $40k range based on the numbers you gave us. Don't give up just because one deal on MLS doesn't work. I think you went through about 30-40 deals on MLS and got one you are doing well. Use some of @John Hamilton strategies along with the litterally hundreds of other ideas to market and buy deals that are on BP. Buying deals is challenging right now but I guarantee there are deals out there for you the question is will you work hard/smart enough to find them. That is the question that separates wannabees from successful investors. I tell you this not to be mean but to challenge you to do what I know can be done if you make it happen for yourself. Only you know the answer.

All the best,

Brian

Adam Stanton · Answer

Like I said, 105k is high end ARV and I'm not very confident it will sell for that.  90 - 95 is safer and smarter to work with.  If I plan for 90 - 95 and it sells for 105, then I just make more.  But to go in to the deal expecting it to sell at the high end is just not smart business.  And yes, the estimate is me doing most of the work.  I also don't buy a lot of material new.  Restore and salvage yards have tons of great stuff and with just a little effort clean up real nice.  Using new material and hiring out trades to come in and do the work would be more.

I've held off from building a marketing strategy because there are lots of deals on the MLS still.  Problem is competition is thick.  Because I have a full time job I can't always get to these places quick enough.  I need the deals to come to me.  So time to make a change.

Troy Fisher · Answer

105k @ 70% is ~ 70k - 25k (repairs) is 45k!  Also if you are a GC, are you really going to be paying such high amounts for repairs?  is that 25k retail or is it what it would cost you to do?

A marketing plan is definitely something you need.

Account Closed · Answer

Where did you come up with the $20K to $25K repair cost was it from a license GC? Most sellers already know that investors will jack the repair cost to get a better deal. Show the realtor the breakdown of the repairs in writing so they can do their due diligence, and then your offer might get accepted. I do agree a new comer will pay more than a low-ball  offer every time.

Joe Gore

Why I'm Pretty Sure This Deal is Over

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