Packaged deal..Should I reveal what I know??

Question

Hello BP!

Today I returned a phone call from a seller who was interested in knowing what I would offer for their properties.  Of course the convo did not start out that “motivated” in the sense that they “needed” to sell.  It was more “wanting” to sell.  However, I continued to gather as much information as I could during the call.

Summary:

Two shells that were purchased at sheriff sales here in Phila.  They were looking to do a packaged deal.  They mentioned that one of the homes prices was negotiable.

Once I got off the phone, I did some research and was able to locate public records on how much they actually paid for the homes.  I know they are clearly looking for a profit (which they should).  However, should I use that knowledge in negotiations?  Or, based on the numbers I ran and they fall within a reasonable amount for a buyer, should I not mention it and allow them to make their profit?  Win, win, win for everybody?!

Thanks

Mary B. · Answer

The ''win, win, win for everybody'' is always my aim and I think its most investors aim no matter the niche. My thoughts are, run the numbers to find out the range that you can offer to maintain that 'everybody wins' motto. Since its a sheriff sales purchase, its obviously an investor that you're dealing with so you definitely need to be on p's and q's. Once you secure the maximum offer allowed calculating rehab to get it to rent ready at the least, flip ready at best, you work from there. Have a contractor (up to 3 should do) go and check out the properties to get a verbal quote on rehab costs to assist you in the MOA.

My guess, if its a recent sheriff sale(2 shells to boot) they are definitely motivated because the properties are vacant and not bringing in any income. They have to pay taxes on them and knowing how Philly works within 30days of closing the county will begin sending L&I out to the properties and mailing them notices to get it fixed up or penalties will be incurred. This knowledge increases your power so as you show interest don't be anxious(at least don't show it) but the more contact that you have with them the more power you have in negotiations.

Kudos,

Mary

Paul Timmins · Answer

@Malita Robinson

Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good luck

Paul

Guy Gimenez · Answer

@Malita Robinson

Once I got off the phone, I did some research and was able to locate  public records on how much they actually paid for the homes. I know they  are clearly looking for a profit (which they should). However, should I  use that knowledge in negotiations? Or, based on the numbers I ran and  they fall within a reasonable amount for a buyer, should I not mention  it and allow them to make their profit? Win, win, win for everybody?!

Just curious, why would you not use all available information to your potential benefit. If you found out the properties were built on top of a toxic dump, would you use that information in your negotiations?

I wouldn't hesitate to negotiate the best deal I could and I'm sure the investors on the other side of your deal will do the same.

Mary B. · Answer

How else will you find out the rehab costs? Are you a licensed contractor? If not, then you simply explain that you are an investor and need a verbal quote on a property to determine repair costs to get it to rent ready / flip ready condition. If the houses are on the same block you get the contractor to visit one and use that quote for the both of them. If you know for certained that the neighborhood isn't fit for a fix and flip then find out the rehab cost to get it from shell condition to rent ready condition. Doesn't matter if you are assigning the contract or double closing you need that figure to calculate your maximum offer allowed. Without it your numbers will be off and trust that your buyer will want to know the rehab cost. Verbal quotes are generally free and you don't have to actually get 3 contractor quotes(that's the maximum in particularly if you were purchasing it to flip / hold yourself, many lenders require that # quotes) just one good licensed contractor would do. They'd be lining themself up for a future project. You can always recommend them since they are the one who provided the quote. I'm not sure if you're in this for the long haul or just passing thru but you might want to establish a good business relationship here and there.... my coin.

Kudos,

Mary

Malita R. · Answer

@Guy Gimenez

Thanks for your advice.  I was able to incorporate my knowledge into the conversation.  It made since to because as you said, they would do it to me.

That was my first property that I ever walked (tried to at least).  It was very vacant and destroyed.  I could only see the upstairs from the stairwell.  The staircase did not look sturdy enough to go all the way up.

However, after coming home and running the numbers again, for what they are asking for, I will need to make no profit.  Even with no profit, their asking price is still too high.  And because the other home is in the area, I know if will have the same estimated ARV.

I'm glad I'm able to notice a BAD DEAL before I get too involved.

Thanks

Malita R. · Answer

Thanks for the reply @Mary B.

How likely is it that a wholesaler gets a quote from at least 3 contractors before each deal? For a newbie, I can see how that could be helpful for estimation purposes, but to me, that seems a bit time consuming and misleading especially towards the contractors.  Of course I would have no intentions on using them to get work done (since that's not my role).

Packaged deal..Should I reveal what I know??

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