Working on first deal, would appreciate suggestions!

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Working on first deal, would appreciate suggestions!

Jim Moorecash
Savannah, GA · Member since 2012 · 10 posts · 0 votes

Well I went to look at a property today. Here are the stats:

1971 built
1640 sqft
4/1.5
Needs: roof/soffit, windows, flooring and paint throughout, appliances, light landscaping, junk removal, repair ceilings in two of the bedrooms due to roof leak.
Owner is asking 85,000, public records say she bought it in november 2011 for only $18,750
Recent sales for comps are 78500, 115000, and 101000. There are four other homes within two blocks for sale ranging from 99000 to 160000. all of the comps are either 3/2.or 3/1. The neighborhood is pretty nice and there is a quality elementary school less than a mile away.

This place obviously needs a lot of work, nothing has been updated for at least twenty years except for the kitchen which has all appliances except a fridge.

Now, she bought this place DIRT cheap, but since the county assessed it at 130,000 when she bought it, she has the delusion that it's worth much more than it really is. My rough estimate is that it would need between $20k and $30k in repairs depending on how nice the finishes would be.

I'm wondering, what you would value this place at now and it's arv. I have numbers in my head, but I'm curious what others might think before I go and make an offer, because I'm admittedly new and don't want to make a huge mistake.

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  • Jim Moorecash
    OP
    Savannah, GA · Member since 2012 · 10 posts · 0 votes
    14y

    Oh, and to clarify (oops), the fourth bedroom is more of a den at the moment, it is part of an addition put on the house, it was used as a game room by the previous owners, which is why I did the comps as a three bedroom, but it could easily be used as a bedroom and I would probably market it as one.

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  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    14y

    One thing I found out from remodeling homes is that it always seems to cost more than your initial estimates, and from the extent of the work needed on this house I wouldn't be surprised at all if you end up going well over your estimates. The stuff you list is just the stuff you KNOW about right now. Plan on finding other stuff as you get into the repairs.

    I think the owner is way overestimating the value of the house. It doesn't matter what the county assessed it at. It also isn't all that relevant what the other homes for sale are listed at. Obviously, if you plan on fix-and-flipping it then you might want to pay attention to the other listing prices because that will be your competition. However, keep in mind that you can list a house for whatever you want. If I list my house for a million dollars, that doesn't make it worth a million dollars. That's just what I would LIKE to sell if for.

    Sold comps are a better way of judging the value because that is what someone actually PAID for a home. If the comps you listed are truly comparable in size, location, features, condition, amenties, etc then pay close attention to the one at $78,500 and don't EXPECT to get more than that. Of course, you might get closer to the high end of the comps, but I wouldn't bet my money on it.

    Without knowing what you intend to do with this "deal", it's hard to say what a fair offer would be. Is it a fix and flip? Buy and hold that you intend to keep for monthly cashlfow? Something you plan on living in?

    Ask yourself and the current owner what is a reasonable value for the condition the house is in NOW, not after the repairs. Because surely the owner can't expect to get paid for the potential after it's repaired and all the money and work that YOU are going to put into it.

    One last thing, be sure you're familiar with your local rules on what is considered a bedroom before you try and market it as a 4 bedroom. In my area, it's not considered a bedroom unless there is a closet in the room. Just something to think about.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y
    Originally posted by Jim Moorecash:
    Here are the stats:

    1971 built
    1640 sqft
    4/1.5

    ...

    all of the comps are either 3/2.or 3/1.

    Here is a big problem...

    There is a HUGE difference between fewer than 2 fulls baths and at least 2 full baths. Never, ever, ever, ever, ever, ever use a 2+ bathroom house as a comp for a fewer-than-two-bath house, as they will NOT be comps, regardless of the adjustment.

    If you're looking at a house with 1.5 baths, only use 1 and 1.5 bath comps.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y
    All areas are different and this is one hell of a good rule to follow, but does have its exceptions. Also, if you could easily turn the 1/2 bath into a full, then of course you can use the 2 bath comps since that is what your subject property will be. (In order to do so, you must do with permits to get the full bath on to title)

    What Jason is stating in his post is that there is a huge difference between a 1 or 1.5 bath home and a 2 bath home in comparison to a 2 bath home vs 3 bath home. In the later, making an added bath adjustment is easy. In the first example, you can't always do it, often you can't do it.

    Same with bedrooms. There is a huge difference going from a 2 bed home to a 3 bed home, yet a small difference between a 3 bed home to a 4 bed, and even a smaller difference between a 4 bed going to a 5 bed.

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  • Jim Moorecash
    OP
    Savannah, GA · Member since 2012 · 10 posts · 0 votes
    14y

    Great feedback guys, I have limited time but I'll try to respond to as much as I can!

    @kyle, yes, I know there will probably be some things that uncover themselves, but I'm working on only getting it under contract and re assigning it to a fix and flip investor, so thats where my estimates came from.

    @J scott and Will, the half bath is actually connected to the master bedroom, and there is plenty of room to put in a stand up shower and possibly enough for a full bath tub, which is why I factored the two bathroom homes in to my comps, although with slightly less weight.

    Also, the den that I mentioned as a possible fourth bedroom does have a large closet, but it didn't have a door, which is what they considered a"den" for their propose I suppose.

    Thank you for your responses, you guys are awesome. I dont want to come across like a know it all with my response, I'm definitely listening to you guys, so don't take it the wrong way!

    I guess it's time for me to go back to the owner and negotiate the hell out of this place and see what I can do. I'll keep you posted.

    Goodnight all!

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  • Watson Smith
    Investor · Peachtree Corners, GA · Member since 2012 · 131 posts · 83 votes
    14y

    Walk away. You'd have to knock out a closet or something to make that .5 bath into a full. I don't care where you are people want 2 full baths. What are you planning on doing with the house? Flip or live in it? I'd tell her 40k and when she said no just smile and walk away.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    14y
    Originally posted by Kyle J.:
    ... be sure you're familiar with your local rules on what is considered a bedroom before you try and market it as a 4 bedroom. In my area, it's not considered a bedroom unless there is a closet in the room. Just something to think about.

    Lots of good advice already given. To expand on what Kyle wrote, a bedroom usually needs a window for both ventilation and as an escape in the event of fire. So the window needs to be a certain size as well. In my area, there is a town that requires three electric outlets per room and those outlets must be spaced around the room (even for rooms where no such requirement existed when the house was built) - no grandfathering of fewer outlets.

    So I can say I've seen a number of listings that call for a certain number of bedrooms, but yet there will be some room that is in that count that doesn't qualify.

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  • Jim Moorecash
    OP
    Savannah, GA · Member since 2012 · 10 posts · 0 votes
    14y

    Solid advice guys, can't thank you all enough.

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