Would You Take This Deal?
Aloha,
I'm representating a buyer who is investing in a fixer upper condo for the first time. Her accepted offer is $215K for a fair condition condo in this location. I checked the comps and there were 2 excellent condition similar units that sold for $245K last month. There is a new listing for $250K and found out there is 2 offers in already.
Problems is we just got done with home inspection and found out that the major repairs would be leak repairs to the ceiling of the first floor, and cost of hiring a plumber to find out the origin of leak and to repair, some electrical work, and the bath tub needs to be redone.
My clients intention is not to spend more than 10K to fix up the place and resell the unit but now with these major repairs she kind of backing out. What would you do in this situation? How much would be the most you would invest into repairs? The market for these units are moving between 1.5 % to 2% a month. Please Advise?
Thank you,
Rowena Wong
I’m no expert, so I don’t have an answer, but I do have a question. Was the condo inspected for damages before the buyer made the offer?
Hi,
Thank you for responding! The buyer was aware that this was a fixer upper. When the home inspector listed all the repairs needed she was afraid it was too much. I believe that even if she puts in 20K in repairs and hold it for 6 months she could sell it for $270K.
I'd take that in a heartbeat...I would venture a guess at no more than 2500 for the repairs but I'm no expert as I do everything DIY except HVAC stuff. I can tell you though materials would be less than 500 for fixing a leak, replacing the drywall and paint and minor electrical upgrades.
This seems to be a very tight deal, if it is a deal at all, even with the 10k repairs.
Even if I think it will take 10k repairs, I would buffer in something extra, just in case. Also there is buying and selling cost plus carrying cost. Just doesn't seem to be any room there.
Is the ceiling leak located under an upstairs bathtub?
A very common leak (and easy to fix) occurs where water splashes behind the shower fixtures (i.e. the faucets, the tub spout, and even the showerhead where they extend thru the shower wall). This water enter the walls and migrates to a downstairs ceiling.
The cure?
Pull the escutcheon forward (that chrome circular piece that's pressed up against the shower wall behind the shower handles and the showerhead). Just grab it and twist it and work it away from the shower wall. Behind it you will see the hole *into your wall* where water is entering. It runs down the shower walls and enters behind these escutcheons.
The fix?
Caulk that damned hole. Use 100% silicone. Push the escutcheon back in place and go have a beer.
Also. check for water comming out of the tub and pooling on the floor. That's another common leak source for downstairs ceilings.
If it's an old place it might be a wax ring at the toilet. I'll let you call a plumber for that.
Otherwise, realize that you should NOT be having a "major" plumbing leak. Why should the plumbing *just start leaking*? That's an anomaly. When you realize this you can go forth confidently and find the source of your ceiling stain downstairs.
Rowena,
Are you sure the client is backing out because of the few extra things found during inspection. It seems from what you have described they knew going in that it's a fixer and requires some work, and from what you are describing it doesn't look like a lot of extra work.
Based on my calculations, your client is paying too much for the property. In addition to the repair costs, you also have holding costs to consider. My top offer for that property would have been 162K. If it wasn't acceptable, it would be time to move on. Hopefully, that is what your client figured out.
Thank you for all your responses! This is the lowest priced unit in this highly desirable area. If she planned to fix it and sell it right away you're right she will not realize too much. If the value continue to appreciate they way it has been maybe by 1 year it can be sold in the high 200K and she can rent it out in the meantime. She has until next week Monday if she wants to back out. If she does than I have another fellow realtor who specializes in fixer uppers and her husband is a contractor, this might be something worthwile for them.
Wow I wish we had reasonable cost rehabber like the mainland. Because we live in Hawaii even the fixer uppers are ridiculus but that's how the market is.
Thanks again, Aloha
All items found at home inspection are negotiable
My first course would be to in writing
notify the seller that those items must be fixed prior to close
If they are unwilling you could attempt to renegotiate or back out of the deal
Rowena,
The problem is you are looking at the future value if the investor holds while they are looking at the present and the amount of cash to invest.
Realtors always talk about a bright future. Statistically most do not own investment property so investors largely ignore predictions from Realtors. In HI, 2/3 of all license holders do not even do one deal a year. Granted there are a few retired but still holding a license.
I suggest you get to know your customer a bit better to understand just why they are backing out. It could be for other reasons and the repairs are just an excuse.
If the deal really is a good one, put an ad in the paper saying you are an realtor looking for investors. Tell them you find below market deals and then screen them. Do not advertise the specific property. When they call let them know that you have deals that sometimes fall through and you want to know who to call. Someone who can make up their mind quickly if need be.
John
[addsig]
The fact is you cannot control appreciation, therefore you cannot buy your future. You have to buy based on the current value in the current market, and if the model doesn't fit your current investment needs, it is time to move on.