Big Lead for Possible Deal

[Stephen E Drew]

Hello everyone. I met my neighbors today and they are a couple that have been doing renovations across the street. I'm always on the look out and I struck up conversation. I asked them if they are flipping the house, and Matt replied that he has owned and rented the house since 2004 and that he is now trying to renovate in order to sell. Covid threw a wrench and his tenants stopped paying. I asked him "Would you like to sell it for an as-is cash offer?" and he seemed honestly pretty interested and answered "Yeah. I haven't thought about that but I would be willing. If the numbers are right".. and then immediately asked me if I'd like to take a look inside. 

He gave me a tour of the SFH. It's currently in shambles and the first floor smells irritatingly like dog pee. The kitchen is ripped apart and there is no sheetrock on the bottom half of the kitchen because thats where the dogs seemed to have peed for the past few years.

I ran comps on the property by using the MLS. I have found that its ARV is between $200-210K and it needs quite a bit of work. It has a new roof and it is surely a great SFH in a good area of Schenectady, NY.

I am truly looking to find myself with more capital these days so I would really like to wholesale this property. I believe its a perfect opportunity for all parties involved, but when I ran the #s using the Wholesaling Calculator, I am a bit worried by what I must offer Matt in order to get under contract and earn what I want.  

I have also not been in this position before. I don't know EXACTLY how to word this all to Matt and his wife because I truly don't fully understand this process either. I am here looking for guidance in this situation.. as well as a partner or someone who might want to work with me to close this deal

All help is appreciated as always 

-Stephen Drew

[James Hamling]

@Stephen E Drew your over complicating things. 

Remember back when you first started in carpentry, those first days when walked into a build, looked at those plans and thought "WTF, look at all this, how is everyone else so easily running around like ant's just doing stuff, where do i start", and what's always taught in Carpentry; just focus on your 1 thing, keep it simple, build upon that. 

Your making the mistake of assuming what seller will or won't do, what seller does or does not value, think etc.. If you can read minds, stop wasting your time in real estate and let's get some lotto tickets, right. 

Here is what you do, on a simple page of paper, do the research and get your ARV comp. Write down the 3-4 supporting address's for this ARV comp, and any modifications you did to come to that price. That's top line number, let's call it $200k.

Then, you write out your estimated reno, AND you must add any contingency $. You should know how to do this and remember your not a slave so don't factor on your free labor, NO, your not free are you? If yes, PM your address, I will send you tickets and fly you to me tomorrow, I will happily put you to work for free labor to the end of time, all the ramen you can eat, lol. Now, lets say that reno # is $40k, alright, now contingency is at minimum $5k right, if not $8k or $10k. 

Now, write down cost of selling. All the fun filled fee's associated with such. Let's say that is $20k all in. 

And then we have our holding costs of everything, from utilities, property taxes' everything. Let's say $10k. 

And last but not least, a fair profit for having done everything, taken it from the wreck it is today too the final done deal, you said $15k. 

This summary should be on 1 page. You should have your supporting docs on other pages, how you got to it all, but keep it simple. $200k minus, minus, minus, minus etc.. 

Then, it gives a final number. THAT's your maximum allowable purchase price. 

Now, you sit down with seller, and you do this together. You pull out a paper, and you write out this summary. Each step, you get agreement. You write out the ARV, tell him how you came to it, and ask "makes sense right" and either he agrees, which most time they do, or he disagrees and you stop there, address the disagreement, ask them to lay out the disagreement and hammer it out until you have that agreed upon before moving forward.

If you follow this simple SIMPLE structure, once you get to the end of the MAO, it will be a number you both got to, together. it's a # they can't ignore, or fight. It's simple math, they saw it, they did it with you. All the factors they agreed on.

I can not tell you how many times I have done this and a seller has launched into fighting with themself and I just sat and watched. They say "well, wow, I was certain that..., I had in mind $150k for the house as a fair price but, right here, it's not even close, it's $78k, I mean, I saw all these sold and thought $150k was a good deal but, yeah, it's right there, holy-cow, I mean.... yeah. The reno is right, and $15k, that's not that much, even if you did it for free, and who knows what will happen.... huh" and you just let them argue away with themself, this is them coming to acceptance. 

Either they will say "well, I don't care, I need ___ for it" and you can just say "well, this is the max we can work with, because i can't afford to just burn $___, that's fair right". OR they ask the golden question, which is something to the tune of "Ok, so, how does this work/ how will closing work/ what do we sign" POW, that's sold, that's done, and at that point just don't shoot yourself in the foot. 

It's really that simple. 

Just be honest, be open, let the #'s do the negotiating. Be fair, to both yourself and the sellers. #1 mistake people make is trying to screw someone in the deal, either seller or themself. Just-be-fair. When being fair, there is nothing to hide, right, so don't hide anything. 

I have had deals where I was certain the # was too low, and seller just said "yeah, that makes sense, ok, what next" and without a drop of resistance it was done. I had one like this that seller got $1,500, I kid you not at closing it was $1,500. And seller was HAPPY, gleeful actually. 

Assume nothing.