Please Help Me...cosmetic Fixer Upper With Equity Question
Ok I'll try to make this question short and to the point. I can buy a cosmetic fixer ( needs cleaned, outside trim painted, landscape maintenance and a couple rooms carpeted) for 170k. I have not had an appraisal done or comps ran yet but houses on that street have sold for 190-195k. Ok now will you all do a deal that could take a couple months and only maybe make 10k on it? I would think I would try to sell it myself because paying realtor commision would cut way into the profit. Oh also it would be an all cash deal. So there would be no getting a loan or anything.
You are paying too much for this deal. There should be plenty of deals out there where you can invest 170k cash and make more than 10k.
If this is a good deal, you should be able to get a house for a lot less than 170k cash and retail it for 190k. To me, it's not a good business decision to invest/risk 170k cash on only plan on making 10k.
I believe I am in agreement with you. Just needed someone else to tell me also. Thanks for your input.
ur going to pass up $10,000 ? what kind of deals are you doing that you would pass up 10k?
I'm not doing any deals thats the thing. This would be my first one and it kind of fell into my lap. At least the oppurtunity has.
I also think that the profit margin is way to slim on this one. Almost without fail, a rehab will cost more than you think. This isn't even taking into account the fact that you are talking about making only a 5% profit. What if you are off by a few percentage points on what the property sells for? What about the lost income on the cash while you are holding the property? Just my two cents but I would try to get a better price on it or keep looking.
Seems like a pretty tight deal.
Use my formula:
-Purchase Price
-Acquisition Cost
-Rehab Cost
-Carrying Cost x 6mos
-Sales Cost x 9%
You dont know how many times I see people go and pay too much for a house. Guess what, it ends up being their first and last deal!
Go ahead, run the numbers. This is based on you selling to an end user getting a new loan,
Best Riches,
Jeff Adam
[addsig]
raymo,
you need to study up more if you think everyone's advice to pass on this marginal deal is not well founded.
jeffrey, you gave us this formula
Seems like a pretty tight deal.
Use my formula:
-Purchase Price
-Acquisition Cost
-Rehab Cost
-Carrying Cost x 6mos
-Sales Cost x 9%
It is confusing. Do you mean take the MONTHLY carrying/holding cost and times by 6 months? What is the sales cost, the retail price after it is all fixed up? Do you times by 9 points because of realtor commission plus closing costs?
Also, what is the difference between purchase price and acquisition cost, aren't they the same?
Thanks in advance for clarification. Best, Dave
I am going to pass on this property. Thank you all for all the help I've gotten from this post and from reading all the helpful insight in all the forums. Thanks again.
Quote:
On 2004-02-23 12:54, davehays wrote:
raymo,
you need to study up more if you think everyone's advice to pass on this marginal deal is not well founded.
jeffrey, you gave us this formula
Seems like a pretty tight deal.
Use my formula:
-Purchase Price
-Acquisition Cost
-Rehab Cost
-Carrying Cost x 6mos
-Sales Cost x 9%
It is confusing. Do you mean take the MONTHLY carrying/holding cost and times by 6 months? What is the sales cost, the retail price after it is all fixed up? Do you times by 9 points because of realtor commission plus closing costs?
Also, what is the difference between purchase price and acquisition cost, aren't they the same?
Thanks in advance for clarification. Best, Dave
Yes Dave, take the monthly carrying cost and times by six. I have had houses in the best neighborhoods fall out of escrow and it takes 6 mos to get it sold. I have had houses fall out 3
times and take a year. Yes it happens.
This is a cheap insurance policy. If it sells sooner, you make more money!
It cost 9-10% to sell a house when you consider the realtor commissions, FHA non-allowables, title, escrow, home warranty, termite, taxes, reconveyance, etc, etc, etc. If you sell it yourself, you can figure 3-4%.
Purchase price is what you buy the property for, the purchase price.
The acquisition cost is the amount to buy the property. If you have a purchase
price of $100k, you still have to get a
loan, right? This could cost you 3k or
5k for loan cost.
Best Riches,
Jeff Adam
[addsig]
Before you pass....... what about doing the following.
1. Try and negotiate a better price for a quick close?
2. Contact the bank and see what kind of a discount you could get for an early payoff or what they would sell the note to you for. You might get even a 10-20% discount that added together with the 10K might make a profitable deal.
3. Ask yourself "what would it take to make this a profitable deal for me?" and then see about structuring it to your benefit in this way.
I use Jeffrey's formula for myself though I play with the 9% a little bit based on how it is structured and if a realtor is involved etc. I used to think that "6 months" holding costs was excessive but not anymore, I have seen closings draw out for four months and then fall through and you start all over again.
Randall
_________________
Winners are not afraid of losing. But losers are. Failure is a part of the process of success.
People who avoid failure also avoid success.
Kiyosaki
[ Edited by Stockpro99 on Date 02/23/2004 ][ Edited by Stockpro99 on Date 02/23/2004 ]
With the owner being deceased do you think they would discount the note much if at all? And would the be able to talk with me about it or would I have to talk to them through a family member of the deceased? Oh and I also forgot to mention that they are selling the house for what is owed on it.
[ Edited by ZCore on Date 02/23/2004 ][ Edited by ZCore on Date 02/23/2004 ]
Good point Randall. I think everyone has to go thru it! I have developed an
addendum that I use now. Basically I keep the down payment if they do not perform. It helps recoup some of the cost. Basically it states that escrow has the right to release the down payment to me without their signature if escrow does not close in 45 days and that I have the option of extending. I usually try to extend it, but when it pushes the two month mark, I am on the phone with their loan agent to see what is up. You have to watch those guys too! I had one guy tell me for two months loan docs were ordered when in fact they never were. Another strategy I am employing now is I request an "approval" letter, not a "pre-approval letter". I also request a
copy of the credit report for the person who is trying to purchase my house within 7 days of acceptance of my offer.
I have had people refuse, so guess what, I dont accept their offer. This has
improved my closings dramatically. If their credit comes back shaky, I then tell them they have to get approved with my lender to do the deal. I dont want my house tied up for 3-4 mos while they loan shop. I learned my lesson.
Best Riches,
Jeff Adam
[addsig]
You guys included everything EXCEPT a dollar figure for your profit. What do expect an average deal should Net Net 10%, 20% 30 % etc.
Yes I think that a bank might discount the note. The fact that the original owner is deceased is of little consequence. The Garn St. Germain act of 1982 prevent banks from accelleration of the loan or DOS when title passes to the children because of death.
Yes, you might have to get a POA or approval from the family to discuss the note with the lender. You would not have to if you were approaching the lender about buying the note.
I might in fact try this first as "it never hurts to ask" If I were to get a 15% discount on the note by paying today that might be significant.
As to dollar amount for profit? as much as I can in good conscience get
That is a personal question, I would never do a deal for less than 10K profit. That said, if I have to tie up 150K of my "own" moneyfor 6 months to make 10K profit, absolutely not!
Randall [ Edited by Stockpro99 on Date 02/23/2004 ]