Need Help With This Deal, Please.
$80,000 home in bad COSMETIC SHAPE. Comparable homes in the area generally run for well over $110,000. Has been on the market for well over 2 months which is a long time where I'm from. Estimated repair is about $25,000. I want to offer the 80k and ask the seller to hold a 2nd + pay closing. If I want money back at closing to help with repairs, is this the way to go or should I ask for a concession? The home is sold in "as is" condition. Can I even ask for anything if its in "as is" condition? I know this house can be a money machine, but I really can't figure out which angle to take. Would really appreciate the help. Thank You!
Your offering waaaaaaay tooo much for that house.
I wouldn't go no higher than 50K.
why??????
When doing a rehab, here is a quick formula.
ARV(after repaired value) x 70% minus repairs = the maximum you can offer for the house in order to make a profit.
110 x 70% minus 25k = $52k
I would offer $50k for the house.
I agree, don't go over 50 or 55k. 80 is WAY to high.
Not sure why you would ever offer 80 K for it. Using your math, wou would loose money:
80 Purchase price
25 Rehab
-----------
105K
X In Carrying costs
X in closing costs
X In Profit
Not seeing any upside here
50 K is what to offer
Okay I see where you are all coming from. Love the rehab equation. One more question. Initially I was going to ask the seller for repair money through a carryback 2nd but at 50k, there's no way the seller will hold. So, if the seller accepts the 50k offer, is there a way to receive financing from the first mortgage lender for repairs or should it be a separate, new loan? Thanks again. <IMG SRC="images/forum/smilies/icon_smile.gif"> [ Edited by cmyke on Date 11/25/2003 ]
Hi cmyke,
Find out what the mortgage balance is. If it is low enough that you can take it Sub-2, you could get e HELOC on the property for the fix up.
The other option is to use Hard Money or Private Money!
Best of Success!
BAMZ
Don't mean to be negative, but the angle to take should be for you to take a breather and step back and evaluate your situation for a bit.
Are your original figures posted here a typo? If not, if they were actually realistic in your mind for this deal you were about to make a huge mistake.
110k (probably not realistic based on how far off you are in your post anyways)
- rehab $25k+ $10k that it would have really ended up costing.
- holding, closing, real estate commisions to resell ($10k)
-80k offer
equals a $15,000 loser, no profit, but $15,000 in the hole.
It could be expected on your first deal that you thought you had $20k in profit to actually end up only making 7K because you were off by some, but to be off by $35,000 on a 110,000 home, that is 30%!!!
Seriously if those figures were not a typo, you need to step back before you hurt yourself. Your first deal will be the one that can make you or break you.
If you screw up really badly on your first deal it may take you years to ever be able to do another one.[ Edited by The-Rehabinator on Date 11/26/2003 ]
Yeah, I have to agree with the seasoned investors on this one. As a new investor, I know how badly we all want that first deal.--But it all comes down to numbers-not emotion. Use the formula they gave you and you will not go wrong.
Good Luck!
I appreciate your care and concern. I have done my first deal and this would be my second. I don't think I was clear with my numbers up top. I was going to ask the seller to hold the 25k as the 2nd mortgage. This would be the money for the repairs. Of course the seller would have to give me the money after closing but the rehab money would've been loaned to me by the seller.. After closing costs, I would still have 21k to do the repairs. Since I've worked in construction for the last 6 years, I am confident that this would be more than enough to take care of the repairs that are necessary. The actual amount I would owe would be 97k (1st mortgage of 72k plus the 25k that the seller would hold. Add my own 8k d.p. and the total would be 105k). I have chosen to work in this area and am very sure that comparable homes in the area are going for 110k and on the rise. With development plans of more new homes and a shopping center in the area, I plan to hold and rent and see what prices look like in a few years. Since I am only gonna offer 50k now, I wanted to know if there was another way to get financing for the repairs. Thank you very much for your input...it is greatly appreciated but I really need to know how I can get the repair money after I offer the 50k.[ Edited by cmyke on Date 11/27/2003 ]
Quote:
On 2003-11-27 03:07, cmyke wrote:
I appreciate the sincerity of everyone including the rehabinator. My numbers are pretty accurate though. Comparable homes in the area have sold for around 110k and are continuing to rise. I have chosen this specific area to work in and know the area pretty well. I will however check with my RE agent to make sure and be safe but I believe that the amount is pretty accurate. Also, working in construction for the last 6 years, there is no way repairs exceed 25k. I am very confident about that. I realize now that my mistake was my offering price which is where the 30k mistake was made. If my numbers don't show profit, I don't pull the trigger. My plan is to hold the home as a rental because more development will be happening in the area (a shopping mall, more homes being built, etc.). I just wanna know if there's a way to get money for the repairs in the first mortgage or should I get a separate loan. The location is very good and improving but I wanna make sure that I can get the repair money before I make the offer. Thank you very much for your care, concern and wisdom. If it shows no profit as a rental FIRST, I don't pull the trigger no matter how good the quick flip side of it is.
You said "If it shows no profit as a rental FIRST, I don't pull the trigger no matter how good the quick flip side of it is."
If you come across a deal that is no profit for rental but is good for a flip please let me know I would be happy to 'pull the trigger on it'
Sorry, I deleted that post cause I misunderstood what rehabinator was trying to say. My primary focus right now is to buy and rent. Right now, I can't AFFORD to take the risk of holding and paying a mortgage if the home doesn't sell by the time the first mortgage payment is due. I've worked 2 years to improve my credit score from mid 500 to 707 and really don't want to jeopardize that now. So by all means, if I run into a quick flip that looks good and the rental side is not so hot, I'll refer it.....for a fee of course.