Two SF Homes for 1st Deal | What should I offer???

Question

Hello BP,

This deal is for 2 SF homes and 1 empty lot. Both units were built in 1970, 3BR 1BA, 1350 sq ft each, are 4 side brick, have a car port each and both sit on about .2 acres.

Both houses are owned by a corporation and used to be used for housing.  I walked around the outside of them and everything seems to look pretty good.  Both of the roofs are good and one house has a newer looking AC unit, the other one looks quite old.

The properties aren't listed yet.  I got in touch with the person who is in charge of selling the units and they said that they had just started working with a realtor recently, but are not under any contractual obligation to list them with him. The realtor told the company that he suggests an asking price of $98,500 for each house and $18,000 for the empty lot.  They want to sell as a package deal for $215,000.

Here is a catch. The company won't let me go look inside of the properties. The lady I talked to said that there is one person at the company interested, but he made a low offer.  Also, she feels like if she allows me to go inside then she needs to get the realtor involved. I told her that she's not contractually obligated to list with him, but she feels morally obligated that if she let me look inside the homes then she needs to get him involved.  Of course they'll be hit with the 6% realtor fee as I would get a realtor too in that case.  I was asked to send an offer via email. This is a bit weird to me, but okay....whatever.

• The homes are on a good street and quiet neighborhood.
• Roofs look good
• Windows are older
• Houses look structurally sound
• The homes are like "twin properties".  They were architecturally designed to face each other and have a common place in between them.
• The lot for sale is small and I wouldn't do anything with it.

Estimates

• Asking Price = $98,500
• Rehab = $30,000
• ARV = $150k - $165k based on recent sales and rehab budget

I'm not sure what to offer on these properties. I would love to BRRRR them. Plus it's hard to make an offer if you haven't even seen the inside.

What should I offer? How should I approach this?

Kevin Hunter · Answer

@Ryan Copeland, what type of a business is it that owns these buildings?  Is it a large, reputable company?  This answer will give you an idea of the shape of the property.  However, you must include an inspection contingency.  That will get you in the properties to take a look.  Figure out what purchase price you need to get to to cash flow and work backward.  Cash flow purchase price-closing costs-holding costs-worst case rehab cost = offer price.

Bottom line, without any idea of the condition or a rehab budget, no one here is going to be able to offer you a purchase price in good conscious.

The no-entry policy also seems really strange to me.  I would at least proceed very cautiously with that remaining an issue.

Another thing to consider.  When you call the lady back to discuss the deal, see if you can find out how much the other offer was.  Try something like "I really don't want to take up your time and effort on this if we aren't close.  Especially with the challenging year this has been for everyone." That will at least tell you what you need to be above to keep the conversation going.

Good luck and let us know how it goes.....

Brian Anderson · Answer

Ryan,

A few Questions:

-Are the properties vacant?  The only reason I can see not letting you in is if they have tenants. Otherwise, beware.

-If there are tenants, what are the lease terms and rental history (are they current)?

-Has the seller given you a property disclosure for each house?  If they use a Realtor, they'll have to do that.  Asking for one may give you some insight to the condition inside.

-What's the empty lot going to provide you from a value prospective?

-is your rehab budget per house or all in?

-How's the neighborhood? Good rents? Desirable location?

-If you buy the deal, how are you going to finance the BRRR? An empty lot is harder to finance than a house so you may have to plan on owning it cash. It may not make sense to get a 50% LTV on an $18k lot.

-How are you paying in this BRRR? Cash in and refi later?  If so, run those numbers on the holding costs until you can get the refi done.

If this were my potential deal, I'd start bay running the numbers on the rent as you plan to BRRR these. Also, find the value of the Lot to you or someone else. Unless you're going to develop it, it sounds like it's not worth buying unless it has to come in the package.

The newer roof and new A/C unit says to me that (at some level) maintenance is or has been performed. That's a good sign. The 6% commission is worth $12,900. My top price (assuming the cash flow numbers work for rental) would be $200k no matter what. That's saving the seller commission and the hassle of showing it, dealing with the tenants (I'm assuming there are tenants).

The rest of your math looks correct (assuming all in at $30k for both houses). I'd imagine that your rehab budget would be shaved down a bit per unit if you do both at once. You'll be able to negotiate a better deal if you're giving a contractor 2 homes side by side to do the exact same finishes on. (same toilets, sinks, carpet, tile, paint, etc.)

I'd ask the seller why they are selling.  Repeat their answer to them and ask another Why question, repeat one more time.  This may get you to the real reason they are selling.  For example;

Me: 'Hey Ryan, why are you selling these houses?' You: 'Well, we're just simplifying things..' Me: 'Oh, great! I'd love to help you with that, what's your biggest challenge with these homes, what can I do to help you simplify?' You; 'We are just looking to get cash out (or get out of landlording/or we have bad tenants/etc)" Me: "great, what do you need to get for these homes to help me wrap this deal up for you?'

I find that some just need/want $$$, some want our of being landlords, some have major home issues that they don't want to share.

Best of luck with this deal!!

Brian Anderson · Answer

Ryan,

I'd be a little suspicious of the no entry policy but you can write your offer subject to inspection of the properties.  I'd run the numbers at that sub $100k level and then write that offer.  In the contract, put something to the effect of: offer is contingent upon buyer's inspection of properties.  IF they list it, they will have to do disclosures, and inspections anyway. Find a way to communicate that your offer isn't going to fall apart because of dirty carpet or a few holes in the walls. But major issues with plumbing, electrical, missing walls, methlab, massive termite infestation, etc. will.  Just don't communicate that last sentence ;-)

All in all, if they are in decent shape, it sounds like a decent deal.

Ryan Copeland · Answer

Yes, the properties are vacant. I guess since covid they haven't been using them for their employees.

No property disclosure.

The empty lot provides no value to me at this time.  Maybe some future value, but not right now.  I would buy if it has to be sold as a package.

Rehab budget is estimate per house.

Neighborhood is really good. It is a desirable location.

I can buy the properties cash, then do a cash-out refi on one of them to do the rehab.  The refi both once rehab is finished.

These properties can rent for $1,000 - $1200 each. Thus my reason for needing to buy them at a lower price.  If I'm all in above $100k, then I'm not going to cash flow at all.  I can live with minimal cash flow with no money in the property, but I own it.

I agree, the properties do seem to have been taken care of, but I don't know how well because I can't see them.

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Two SF Homes for 1st Deal | What should I offer???

What should I offer? How should I approach this?

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