Your Tho'ts On This Deal

I found a deal and I wanted some input to it’s feasibility and practicality. FYI, this will be my first deal. Sellers asking $290,000. It is in good shape but needs to be cleaned, new carpet and new paint. It is a 3/2, roof is in good condition, as is the rest of the structure. It is not a bad looking house and it is in an area where houses do not stay on the market long and often get bid above asking. Comps are $315K to $320K. The sellers are willing to sell at the lower price so they will not have to do the fix up.

The margin is not big, but I want to offer the sellers full price on a one-year lease option deal, and an “earnest money” deposit of $3,000 and no monthly payments for the first three months. Although the lease option is for a year, I would be fixing up and selling as quickly as possible.

Because I got this from the listing agent to-be (it is not listed yet), I would offer to pay the difference between the seller’s closing costs (about 2%) and sales commission if they sold at $290,000 and the $315,000 selling price. I am guessing repair costs are about $6,500 and my part of closing and commission would be about $2,000. This would still leave $16,500 if I sell at the low end of the market.

I would make the offer contingent on seeing the property. I can make calls to get prices on painting, cleaning and carpet. Which I will shortly.

So how does this sound?

Paula S.

Comments(14)

  • jackman3rd December, 2003

    Paula,

    I'm sure you'll hear that there isn't a good enough spread to make this a good deal - because it IS tight. I kno tho, that you want to get your first property under your belt - so if you've done your due diligence on it and there's no liens on it, then line up some financing, just in case something goes wrong and your t/b doesn't take it, or if you don't find one with those terms (1 yr).

    After that, go ahead and get your money. Just for the record tho, if you said it only needs lipstick (cosmetics) and no real repairs, that 6500 is kinda high - tho i don't know CA prices. I'd consider getting cheaper labor or doing most of it myself. If you go to a rougher neighborhood close by, I bet you can get labor waaay cheaper than that, and quality work as well. You just may have to go pick them up everyday yourself and drive them back when the day's over - but it saves incredible amounts of contractor monies.

    Good luck!

  • nebulousd3rd December, 2003

    don't forget about your hidden expenses and taxes.

  • pserber3rd December, 2003

    Thanks for the input. I know it is not a great deal. But I thought it would be an excellent deal to cut my teeth on.

    Okay, I can usually figure out the shorthand, but what is “t/b”? And are you saying I should consider get financing on it if the lease option offer is turned down? In my opinion, green as I am, if I have to get financing, the deal is far, far too tight. I would have the monthly mortgage payment as well as to pay seller’s closing and sell it myself. The selling it myself is not so much the issue as is all the additional costs. Additionally, reselling after holding the home for a few months is not that easy – from what I hear.

    Paula S.

  • ahabion3rd December, 2003

    well sounds like your on a good start...

    few questions tho:

    what does the seller owe on the house?

    how did they come up with 290k as a selling price?

    reason i asked is because if they owe 290k or right around there, then maybe you can just take it sub-2 and sell it at Market value(i say this cuz you have some money to use for monthly payments instead of earnest money)... or if they have some equity in the house and they want some out of it, then do a purchase option with $10 consideration. Market the house as-is and when you go to show the house, let the buyer(s) know that if they want the house fixed up before then, let them know you can do that...it'll cost a bit more but not much. once you find a buyer and they get financing, close on them and get an equtiy split between you and the seller... course the split doesnt have to be 50/50...

    i think you can do that, course i've never done it before so dont take my work for it. i'm still trying to sell my first house.





    [addsig]

  • pserber3rd December, 2003

    Wow! Some good ideas. First, let me say that I made my rehab costs high because I know there will be little things that need fixing (I know it needs closet doors) and then there is insurance. Second, an agent has this deal. So some how this person has to get paid at lease his share of the commission. Now that is a thought…

    I need to find out how the agent is getting paid if the property sells before it is listed. I need to make a call…

    Paula S.

  • pserber3rd December, 2003

    Darn it. The property is already listed, just not on MLS. I was hoping to have some play in the commission.

    P

  • edmeyer3rd December, 2003

    Could you get it at a lower price with a shorter term lease option? You are not likely to need a year if your market is moving well.

  • pserber3rd December, 2003

    This house is in So Cal. So I do not have a whole lot of bargaining power. The house will go quickly, really quickly. The area it is located is particularly active.

    I am hoping that a lease option would be attractive in that if I don't act on the option the sellers will have my down plus whatever improvements I do.

    Paula S.

  • Lufos3rd December, 2003

    Dear Paula,

    Yes you are close, bargain the broker it sounds like a pocket listing. keeps it off the MLS cause it is so good. Is your broker the listing broker? check are you dealing with salesman or Broker makes a big difference when attempting to bargain.

    You have an excellent labor force right there in town or go north on 78 and look just past town right hand side there is a alta kocker contracter noh handy man.

    Fliped a 40 acre with house and barn, great property has a grow room all in place under the barn. New Owner is retired cop so maybe not to mention he is very nice and very square his wife is Deputy Sheriff. Talk about a family affair.
    they may grow mushrooms, you buy that?

    Your deal pretty well flies or fails based on the following is your broker the listor?
    Is he a salesman or broker? How long has it been listed? Any other activities on property?

    Thats about it. great spot to eat on maindrag. Is everybody evenly divided
    between car freeks and horsey snottys?

    Some interesting buys to the North toward Julian some really hot lots. Well they should be cool by now.

    Enjoy Lucius

  • jackman4th December, 2003

    sorry, just realized i missed your question ...

    t/b = tenant/buyer (for lease options)

  • davmille4th December, 2003

    That does sound way too tight to me. Your profit (which is usually less than what you hope for) is only about 5% on list. What if you are 7-10% off on what it would actually sell for(not unusual) or what if it costs more to rehab than you think. Of course, it might be good experience but if you lose a few thousand on your first deal it might not be the kind of experience you want. I hope I don't sound too discouraging, but I prefer to see people who are rehabbing their first house to hold off until they find one that allows a big OOPS! factor.

  • pserber4th December, 2003

    Okay, davmille, jackman, Lufos. I hear you loud and clear. And I am taking your advice. It's too close, not enough profit margin particularly for unexpected costs or delays.

    It really , really hurts to let this go. Since it is in my town. Deals are rare here. I am doing rehabs out of town (as in other states). Just had an offer accepted on our first project. You might think it's nuts but I am going to make it work if it's the last thing I do! I am driven.

    Love you all for the input!
    Paula S.

  • ahabion7th December, 2003

    paula, i'm glad that you are determined and well so was i... but one thing i had to explain to myself that someone else gave me was this:

    "thats all great and all but just remember, you dont want to become a motivated buyer."






    [addsig]

  • pserber8th December, 2003

    ahabion,

    Point taken!

    Thanks

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