Selling My First Rehab Project: Need Help
I have recently put the finishing touches on my first rehab project and put the For Sale sign in the yard. I have took out two ads, one in the local newspaper and another in the local I Wanna paper. Calls are not coming in very fast...only 3 in 2 weeks. The ones that are coming in are asking me about owner financing, another doesn't have good credit and wants to use his father as a cosigner, another wants me to wait till May, because she is getting her disability and wants to move beside her mom.
I want to know how owner financing can put money in my pocket. I need my money out of this property in order to invest in more properties. The guy who has bad credit says he has called several lenders and they are trying to convince him that my price is too high. I had the house appraised and I am offering it at the appraised price.
Is there anything else I can do to stir up more interest in the house, or is there a way I can provide owner financing and yet get my money out of it quick? Is there help for people who have bad credit and how do I prequalify them for a loan? Please respond in simple language. Thanks for all your help. 
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Hire an experienced broker. Statistics show you will likely get a higher price. Not to mention sorting out what is (or is not) a viable offer.
You could always look at L/O. Tell the guy with the bad credit to submit a written offer. Then you can always reject - at least you'll have something in writing. Remember if he's only a little lower it may be worth taking considering your holding costs and the fact it's holding up your money.
Also keep in mind the commission you'd have to pay for a RE agent to list it for you.
I am in almost the same exact position on my first property. Not a fun place to be. However, as "Boston" suggested to you, I do have a broker that works for my company.
Unfotunately, I bought a GREAT house in a poor area for comps. I knew this going in...but really needed to get to work. Everything around it (360) is 20% higher. Closer to my list price.
I can tell you that even if you have a agent broker working for you, everyone that your potential buyers talk to; other Realtors, Brokers, Banks, etc.. will try to convince them that the price is too high.
I completed the work in 45 days, house looks Fantastic but after I look at all the expenses, & carry for 3 months I will just about break even with a slightly lower than estimated appraisal (buyers appraisers paid and work for the banks interest not yours), and that RE Commission.
So, this week I am working on a no seasoning req'd, cash out refinance, keeping the property and then immediately marketing as a 2-3 yr L/O.
This way I get my down payment back for other immediate investments from the Refi., get down payment money for the Option, get about $200 month positive cash flow from the lease, and a nice payoff when the Lessee Refis or Buys. Or steps away from the deal and I sell to another buyer.
This turns my almost break-even into about a 15-20K profit. And allows me to continue using the home as leverage.
Any others' comments would be appreciated on this as I am still thinking it through too....
SG
I learned the hard way too, I plan now on 6 months carrying costs regardless.
Realistically if you have advertised, put signs up, put a big sign in the front window on butcher paper with pertinent data and price and a flyer in the yard and aer getting "no love" then you are too high for a quick sale. My inlaw does it best when he prices it at 90% of FMV and has no problem moving properties fast because he leaves cash on the table for others. When you try to do a full retail then you can plan on selling it slower unless the market is rapidly appreciating.
Most sales come in at 95-97% of list price in areas where I have worked. When you add 6% realtor fees you would have been better off selling at a discount. I have never sold through a realtor but have bought most using them.
You might consider getting it on the MLS, in SL I can get it on for $100 through a contact and then use your own number at the contact number. If a realtor brings you a buyer then plan on 3% to him.
Additionally you might make contact with a mortgage broker for fincancing options for buyers and offer to pay a percentage of the closing costs. I typically pay up to 3% of house value towards closing with full price offer. I prefer the "womb to the tomb" approach where you take care of their needs and lead them down the path of financing etc. that you choose.
Most people are in such a hurry to get the first deal done that they are unprepared, underestimate the carrying costs and repairs, & selling time and overestimate the sales price. When it doens't work out for them then they leave and never come back.
I have developed my own program that tells me when I am getting too anxious and keeps the numbers real.
I lost 50K on my first deal, persevered and made 100K plus on the second.
You can make this work
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Stockpro99 is, in my opinion, right on the money. It is important to note that although "SP99" is not using a broker, he/she is
1) Experienced in what to do in order to create a sale,
(2) taking on the responsabilities of a listing broker (MLS submission, financing arrangements, advertising, etc) and most importantly
(3) willing to work with (and compensate) the brokers who have the buyers.
Although I do not disagree with the other postings, I stand behind my original advise. You will know when you have enough "know how" to widen your margins by removing expenses such as realty fees.
Regarding the Lease Option question, I have no experience in these matters. L/O is not an effective marketing technique IN MY MARKET. Could be a cash cow in yours!
Owner financing can most definitely put money in your pocket, and using temporary seller financing is a great way for rehabbers like yourself who are experiencing a slow response from buyers.
You simply do not need a realtor to move properties you've rehabbed by using this method:
1. You advertise in your ads "Owner Will Finance"
2. You will get a LOT more responses because there are lots of buyers who do not want to deal with the hassles of banks, pay all sorts of junk fees, etc.
3. You pre-screen all buyers in the same way, collecting data
4. Once you have the best candidate for the house, you work with a note broker who deals directly with note buyers to qualify the buyer
5. The new 1st lien will be bought at a discount (as this represents the equity in the note to the note investor).
6. Suggestions will be made to you to minimize the discount, increasing your cash proceeds at close.
7. Once a buyer is qualified, and you the seller, and the buyer sign off on the terms and purchase price of this new note, the deal moves to close
8. This transaction is called a simultaneous close because there are two closing events: a. owner takes back the note and b. owner sells the note to the note investor
9. You can expect, GENERALLY, that an A credit profile buyer of an owner occupied single family stick built construction home, with 5% min. down, will net you 88-93% of that 95% first.
Those numbers are not set in stone, as many variables can affect the final note purchase price, but it gives you an idea that if you bought your fixer upper right, and you have the equity in there, you can use this owner financing strategy to draw from the largest possible group of buyers, sell your property at its full appraised value (stop reducing price, reducing price), and sell that first lien for enough cash that you have a substantial and acceptable profit, so you can move on to future projects.
This strategy works great for all real estate pros, whether rehabbers, realtors, etc. with inventory that is moving too slowly, AND there is enough equity for everyone to get the cash they need.
Hope this helps. My best, Dave
Hey Dave,
Any advice on where to look for these discount Note Buyers. Where might a person begin looking for Good terms, Somewhat honest, upfront people to work with.
It sounds like a great idea to always have one (that you have established a good relationship with) in your back pocket, just in case you need them.
Hell if you had enough margin in all your properties, you could almost build your business around it.
Thanks,
SG
Sain
Here's a concept I've seen work very well as sort or a last resort before a full listing. Put together a very attractive flyer and distribute it to all Real Estate offices offering a 3% commission to an agent who brings you a qualified buyer. Beats 6% and now you will have buyers agents getting paid the same as if the prop had been in the mutiple. Good Luck
You folks were a big help to me. I am going to reevaluate all my figures. May even decide to list with note buyerr or to go with a real estate agent. But I am going to take all of your advice and consider each option. I am getting sort of nervous about my money being tied up! Plus, I found something else I would like to invest in. Thanks to all
I just joined CI yesterday. And while I'm in the learning stage and will probably not make any offers for several months, I have learned a great deal already, just by reading your messages in this forum. Thank you.
By the way, do you find the monthly meetings valuable?