Can I do this deal? Part 5, What do you think?

Question

I'm a rookie investor looking to do my first deal. I'd be nervous with an auction but this is a little overwhelming... 
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Can I do this deal? Should I even try?

Jim Gordon · Answer

If you can track down one or two of the remaindermen they may be able to contact the others. The biggest obstical will be to get everyone to agree to the sale. With heirs it becomes a "what's in it for me" factor. Good luck!

Gary M. · Answer

I'm not desperate, because I seem to be learning by doing. But, without any local REI club or mentor I do value and need all the input I can get. I hope my updates aren't a nuisance.

Account Closed · Answer

The formula is presented two different ways and the result will not be the same for the reasons you cited.

Think of it this way. You want to be able to finance the place using hard money or sell it on. Hence the 70% of ARV tend to mean that you know you could find the cash if pushed.

If calculation is always more conservative and you get the deals agreed then use it. If you are getting outbid by a small amount and the difference matches the change in formula then adjust.

I would claim that the formula should be (ARV * 70%) - (repairs and all other costs). The logic being I do not want to reduce the repairs and other costs by the percentage. I want to deduct 100% of the other costs from the maximum price I would pay. I would pay 70% of ARV if there were no costs is the assumption in my math.

Note that I prefer 65% but that is a personal choice.

John Corey

Gary M. · Answer

Well I haven't given up on this deal yet. It will be auctioned at the end of the month because of back taxes. I have finally gotten a hold of most of the parties involved so it looks like it might move forward. My questions are...

1 ...what is your experience with closing with multiple individuals on the title? And, is it possible to close if they can't be in the same city at the same time?

2 ...I can buy one individuals portion (out of 4) for $1,000 and probably another's as well. The other 2 may be a little more discerning. If they don't go for 1 grand then will I have to give all of them the same amount?

3 ... If the discerning pair want much more should I try to partner with them (they're complete strangers to me) or just walk away? (I could have 1/2 interest in the place for $2,000, plus closing costs, so it's not like wouldn't have any leverage in the deal.)

Thanks for your time and input.
Gary

Gary M. · Answer

update:
I went ahead and paid for a title commitment. At the title co the lawyer on staff was very helpful. She said that it was definitely doable. I just need to have the remaindermen sign Warranty Deeds and schedule a closing. Now tracking down these people is going to be my next hurdle. I need to get all this done by August, that's when it's sold by the city.

Two questions:
1. Any suggestions on tracking these people down? They aren't listed in the phone book. The last know address for two of them came from court house records.
2. If getting them together for a closing is a problem, can I close w/ each of them separately?

Your input is appreciated.

Gary M. · Answer

OK, I talked to a lawyer and it is doable. To oversimplify, the family needs to sign the title over to me. It's not that cut and dry but it seems that this is not unheard of.

What I imagine is that I will offer to pay the family to take this off their hands. That could be really really cheap or they could get greedy.

My current investing strategy is to do capital gains type deals to eliminate our personal debt. If I get a real exceptional price on the house, should I just pick up the trash, mow the yard and sell to another investor, or go for the complete rehab? The house is prob. $94,000 ARV, rents in this area are about $750/mo for 3br 2 ba. I've not been in the house, as it's not available to view, but I think that it would be prudent to assume that it's rehab would be worst case scenario cost-wise.

My next step will be dealing with a private lender. He is an experienced RE investor and retired agent. What kind of terms should I expect and how is the money doled out?

Any thoughts on purchase price in this scenario?

Any advise for dealing with a private lender?

Gary M. · Answer

Would it be possible to move before it is condemned? I did a little reading and it seems that the house could be transferred. I just don't know if I have time or what questions to ask.

Richard Warren · Answer

First thing you need to do is to determine what it is worth.  If it was in good condition what would the value be (After Repair Value)?  How much will it take to repair?  
Formula: After Repair Value (ARV) – cost of repairs x 70% = Maximum Purchase Price
Example: 100k ARV – 20k Repairs X 70% = 56k Maximum Price

Find out the procedure for bidding at auction, do you need all cash?  They should be able to tell you that.  If you can get it at or below the max price go for it.  Do some homework and keep us posted and we’ll try to help.

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