I would think this off-market deal would flip easily??

Question

Hello fellow investors, this is my first post here.

I wanted some help and advice from more experienced investors to analyze this deal - which I believe would be a killer deal for cash buyers to grab - but which I'm not seeing the positive results I'm expecting. Maybe one or more of you could point out where exactly I'm making my mistake...

First it's a true off-market deal. Address is: 725 Matsons Ford Rd, Villanova PA 19085. Online sources like zillow etc have outdated info about it, but it is: 4 / 2.5 / 1700 SqFt / yr 1935 Two-Story SFR. Current Pictures:

https://goo.gl/photos/1bBud6ifjxoReLwA8

According to motivated seller: Recent Updates: New roof, electric and plumbing (5 years ago), new carpeting (1 year ago). Needed Updates: HVAC system, driveway, interior and exterior paint, kitchen, bathrooms, windows, driveway, some new walls for half of the house, some carpeting on stairs and 2nd floor.

my Rehab Estimate: $35K.

ARV: $440K. Comps:

1. 684 Conestoga Rd, 19085 (4/2/2537 SF): $705K on 11/2016 (P/SF= $277.90)

2. 1931 County Line Rd, 19085 (4/3/2409 SF): $589.5K on 10/2016 (P/SF= $244.70)

3. 175 Gulph Hills Rd, 19087 (4/3/1900 SF): 605K on 9/2016 (P/SF= $319)

4. 485 Arden Rd, 19428 (4/2/2375 SF): $591K on 9/2016 (P/SF= $249)

Avg of above 4: P/SF = $272.65 x 1,700 SF ~ $460K

Also house next door on 721 (which has very similar features), sold in 2/2016 for $450K, and the local market has remained steady (not up or down) for the past two years, so this can also be a supporting comp. In general, these were the best of the comps that I could find.

My asking price (not firm) is: $249K. Using the famous "wholesale formula":

ARV ($440K) x 0.65 = 286K - repairs (35K) = $251K.

That is quite a delicious spread between $249K and $440K (=$191K)!

BUT let's for arguments sake say I'm way off in my numbers... and ARV is much lower like $375K, and repairs are higher like $50K, even then still with my non-firm asking price of $249 plus repairs would come to around $300K, and that should STILL be an attractive spread to the ARV of $375K.

Yet a number of buyers who I know are interested in that county/zip code, after hearing about it, just fall silent without response or explanation or even at least countering with a lower offer...

WHAT GIVES??

Ryan Dressel · Answer

I see that you are located in Virginia, are you familiar with the area?  Nothing that hasn't been said already, but you'd basically have to build a private estate on that plot of land to make a profit.

Marc Mittman · Answer

@Christopher Lombardi is correct.   Your reno cost is extremely low for the condition and market area.  The median sales price for the Villanova area is $967,500 per Realtor.com however with that said this is on the edge of Villanova and Gulph Mills.  IMO the site conditions detract from this properties value.   The NHSL tracks, are very close to the corner of the property and runs along the back  yard.  The NHSL parking lot is adjacent to the property and currently is the only place for the potential occupant to park as there is no driveway.  This is also a high traffic intersection.

I'm not sure what you were looking at but the house next door doesn't have similar features.   It's a totally different structure with good bones.   It's not a bungalow with shed roof additions on the back.  It's also sitting on a larger lot further away from the train tracks and station.  All of these factor and issues weigh into the value and comps.  Have you contacted SEPTA?

Bob Okenwa · Answer

Hard to say what rehab would cost without knowing the exact status of the HVAC, plumbing, and electrical. 150k for a 1700 sq ft house would basically mean a total tear down and then some and custom finishes. The pictures show the home needs a great amount of work and 35k doesn't seem realistic, but pricing of labor and material varies by location and contractor. In my area, I've heard of kitchen re-do's for under 10k for cabinets, flooring, and countertops. A new HVAC system runs about 6k-8k or so and a rewire would be about half of what Christopher Lombardi paid for his. But on the flip side, we're talking about houses from the 70s in most parts of the city with no basement or attic and minimal landscaping. The area of the home is a good one overall, but the power lines and train station will hurt your ARV by at least 10%. Probably 20%-30%. But I am far from an expert on PA real estate but maybe you can get it under contract with inspection contingencies and get a contractor to give you a professional bid and an inspector to do a thorough walk-through to get a better sense of what you're dealing with. Just my 2 cents.

Basel Hakim · Answer

Thank you for your quick and very helpful reply Mr Lombardi! I appreciate having another set of more experienced eyes...

Could you provide in more detail how you came up with the $150K estimate for repairs?

Also, do you have any insight as to the house next door on 721? It's very comparable to this house in that it's also 4 bed, 2.5 bath, slightly larger at 1950 SF, and built earlier in 1900, also two story SFR, but it sold for $450K in Feb '16... Not that I'm doubting you in any way, but curious why it sold at such a good price if the area is pretty bad as you described.

I would think this off-market deal would flip easily??

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