Wholesale rental property in good condition... what to offer?

Question

I'm new to wholesaling homes, especially rental properties. I'm trying to make a fair offer, but my experience so far is that landlords/investors see the value of the home and think it's worth more because they have a paying tenant. It makes it all the harder to negotiate a wholesale price. (thoughts?)

Details:
•3/1 ranch
•1,554 Sqft
•2 stall garage
•Roof is in great shape.
•10x15 office area (not considered one of the 3 bedrooms)
•no washer and dryer hook ups. Tenant uses laundry mat.
•no basement
•no dishwasher
•smells like tenant smokes (is that a deal breaker or doesn't matter?)
•no major repairs. There's a small crack that runs down the middle of the ceiling, but it doesn't look like any water damage. Might be from house settling, but that's the only thing that really stuck out.

Home is in a nicer grand rapids MI neighborhood near main drag of retail and businesses, not ghetto at all. Seller tried selling in winter of 2010 at $75,000 but did not sell after 4 months.

Home is a section 8 rental that brings in $816 a month with a tenant that is happy there. Taxes are up to date and currently $2,600 (over-assessed?) a year. Seller is motivated for health reasons.

Recent Comps for this home are ranging between 70k-80k so for the sake of being conservative let's say 70k.

Because I'm looking to wholesale/flip it to another landlord I would need get it around 40k-50k. Is that a fair offer for a rental property like this more or less?

Tried to be as detailed as possible to lay everything out on the table.

Thanks for your help!

Account Closed · Answer

Michael: Send her an offer any way. Costs you 45 cents. Make it simple. Price and terms and that you'd be happy to hear from her anytime. If it doesn't sell in 6 months, send a follow up. Sellers often work with what's in front of them. In six months, your offer may be the only thing in front of her.

Nathan Emmert · Answer

Michael, there are a few big concerns with that property.

#1 is the taxes. Those taxes equate to 25% of GOI at Section 8 rates which are often over market.

#2 is the seller will base his sales price off the Section 8 rent he's getting. A savvy investor would likely go by market rates which are often lower.

#3 is price. I'm a little easier than some investors, but I still target 1.5% of purchase price in rent. I'd be looking around $50k maximum.

Jonathan Sher · Answer

Michael, like you mentioned, it's very unlikely you will be able to get this cheap enough to make a buck off of it since it's already rented and bringing in money. Although it's different in different areas of the country, the 2% rule would make me a buyer at just over $40,000 to make it a rental.

It's definitely a negative it doesn't have a washer hookup, but that could probably be installed fairly cheap. Slabs are also less desirable IMO in general but is certainly not a deal killer.

Andrew Jones · Answer

Being a small time landlord myself I would buy for around 45K for rent of $816 if it were in my farm area. Verify $816 is market rent.

Michael Lauther · Answer

Michael , I agree with K.Marie's assessment. Get an offer to her. It is one thing to talk about what you will pay and quite another to have an offer on the table. One property I purchased last year came after I was told that a short sale was already approved. I submitted my offer anyway and when the first deal fell through because the buyer could not come up with the funds the broker called me and I closed within a few days.

Michael Lerch · Answer

Thanks for all the replies and feedback. It was as Nathan said, and it wasn't possible to negotiate a price low enough to make it a deal. Lowest she'd take is 61k because she has a tenant at $816. I guess health and distance wasn't a big enough motivation to sell. It was a great experience to know what makes a good deal so thank you all for your help. Now if only I could get a REAL motivated seller I'd be set.

James H. · Answer

So what if a "wholesaler" had a great deal even with the markup? Would you scoff at it?

Ken Latchers · Answer

I could never imagine buying a property from a "wholesaler". I Buy & Hold, know where to get good prices, and I don't need any middlemen to drive up the price.

James H. · Answer

A property that fits that condition in my market would be a good deal at 50K. It would be a great deal at 40 to 45K

Taxes seam high even for Texas where taxes ARE high. I have noticed that some (not all) rental properties get appraised higher than their neighbors. Not sure why this is - maybe landlords not fighting increases? Maybe I have just happened acrosss a few instances coincidentally.

Ali Young · Answer

I would not buy at 75K if this is the appraisal value and considering comps value. You would want at least 30% equity at time of purchase if you are looking for a rental and a minimum if you are looking to flip.

Wholesale rental property in good condition... what to offer?

Wholesale rental property in good condition... what to offer?

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