OfflineHello everyone. I've been using the techniques provided in Dean's books and I'm hopefully on my way to completing my first assignment. I just wanted to run this by everyone on here and see if I can get a few more opinions.
I found a home through bandit signs and I'm going to look at it this Thursday. The seller bought the property for his father who passed away a few years ago and has since been living in the property himself. The house is too big for his family and he doesn't want to keep over paying on the mortgage. I've ran comps on the home and retail or ARV looks around 163-167K. Unfortunately the seller still owes around 119k on the home but from what he said over the phone, it sounds like it doesn't need extensive repairs. The home was built in 2000 and needs things like some tile repair, replace 2 windows, ceiling fans, dish washer, some minor work to get the pool clean and running, and he said the front door frame has some dammage where someone tried to break in while the home was vacant after the passing of his father. If everything looks decent on Thursday I'm going to talk with the seller about purchasing the property for what he owes on it.
So Assume he aggrees to 119k, I was planning on writing the contract so the buyer pays all the closing costs considering this guy probably doesn't have extra money to dish out for closing. We're not using a brokerage, just going straight to title because this is a FSBO. I don't have much experience on how much closing costs are just using a title company so I just assumed 3% of sale price. I plan on assigning the contract within a 14 day inspection period and I'm aiming to get a 5k assignment fee.
So right now it would look like my end buyer would have to pay the selling price of $119,000 x 3% for closing costs which comes out to $122,570. Add in my assignment fee of $5,000 and the end buyer gets said property for $127,570. Assuming repair costs of $10,000 and a profit of $10,000, the end buyer would have to sell the property for at least 142k. That number is a good 20k below the retail comps for that home so I figure thats some wiggle room for either more profit, or more extensive remodeling/repairs. S far thats my reasoning on this deal and hopefully all will go as planned. I'm curious to see what you guys think and look forward to your replies.
Thanks in advance,
Zach
First off congrats, but someone inherited the property that means that that property has to go through probate. Has it gone through probate and released to him by the courts? If not, then it wont be a deal until it has and that can take MONTHS. Sorry to bust your bubble and slow your roll. Not to mention that he has to be the one who has the right to legally sell it and if there are any others involved such as family members, they all have to be in agreement about selling it, the price and sign off on it all together...these are somethings to ask the seller and verify...Do your due dilligence...You dont want to get slapped in the face later...Otherwise make your offer on it...Good luck...
And also the closing costs depending on the state is 5% of the purchase price. I also re-read your post again. Something hit a nerve. You said the buyer will profit 10,000 after repairs? Most buyers wont buy anything unless it is 60-70% of ARV...They have to have profit in the deal, and 10,000 isnt going to cut it for most. Im just being honest. Because when THEY have closing costs and get ready for re-sell they may only have a 3,000-5,000 profit. Not to mention something they may have to split with a partner or project manager. Theyve also got contractors to feed as well as holding costs. Theyll need a profit MORE than 10,000 and your profit can't be larger than theirs. Leave your buyers some meet on the bone...You want buyers and repeat customers...So offering at 119,000 wont cut it...offer lower...im suggesting something at 85,000 or 90,000...but even if it is accepted the property will have to go through Short Sale. Which can also take some time to be approved by the lender...If the property has to go through short sale and or probate and or if the seller wont go less than 119k then its time to keep looking...
Another option is to find out what the property would rent for. If the rents are high enough, an end buyer might still be interested in the property at the price you propose because their ROI would be where they need it to be.
A lot of your strategy depends on who your end buyer will be. A property that doesn't look profitable with one strategy could look fabulous with a different strategy.
Hope this helps,
Stephan Roberts
"In absence of clearly defined goals, we become strangely loyal to performing daily acts of trivia!"
Here is a FREE property analyzer I've found:
https://tvallc.infusionsoft.com/go/RehabLite/sroberts/
It's a great tool to use to help analyze your deals (and did I mention it's FREE)! But, you really should spend the $97 and get the full premium edition! IT'S AWESOME!!
If VonnyV23 read your post more carefully I'm sure it'd be much more helpful.
On the other hand, though saroberts69 seems to be on to something worth considering.
First things first, propose your verbal offer to the seller and see what happens.
Worst case: they turn you down and you move on
Better case: they counter your offer and show that there's at least some interest in making a deal work.
I'm by no means an expert here but I'm only going by what you wrote.
Good luck, by the way
P.S. I suggest filling out your profile
Less Talking, More Doing
Not to argue with you, but unless it is listed, 5% closing costs are way off base.
If it is listed, you will have commissions involved. If it is not, all you have is title fees and prorated property taxes. That should only be around a $1000 - 2000, depending on how high taxes are, at that sales price.
I do agree, however, that $10,000 isn't much to entice a buyer.
I just sold a house that needed to go through probate. The person who died had his affairs in order and specifically stated all of his possessions would go to his sister. This made the probate very easy. We had it ready to go in about two weeks, with a signed order from the court, showing the sister had all rights to sell the property. We had absolutely no delays in the sale. The buyer bought it with FHA financing. And it closed in three weeks. I was very lucky on this one.
It can go a lot longer, if they didn't have their affairs in order.
Jim
Like Stephan said above, a sandwich L/O could be your best option.
Also, it is a good idea to have as many buyers as you can find. Build that list! Some buyers (most REAL professional investors) go by ROI or cash on cash
return. Just a brief look at your numbers shows your buyer will have around $140,000 out of pocket, depending on his money and holding costs. If he can get HIS buyer to pay all closing costs when he sells and does it FSBO with no commissions paid out he could net around 15%. A lot of investors will take a 15% return all day long. Others may not. If he sells it through a realtor he can negotiate total commissions down to 3% instead of the standard 6%.
I don't know what state you are in buying in but $3825 in closing costs might be a little high also.
If the property has equity, no lender will allow a short sale. You can't just create a short sale so it matches your offer.
Good luck on this one. You never know until you try!
Michael
Knowledge is power, but execution trumps knowledge. Tony Robbins
http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site
Jim is right. Probate totally depends on how the will is written. For instance, if the property is in a trust it can be sold just how the deceased wished, without any court involvement. Varies case to case.
Michael
Knowledge is power, but execution trumps knowledge. Tony Robbins
http://www.mdhomeacquisitions.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyer site
http://www.mdhomeacquisitionshousehunter.com Bird Dog Site
http://www.mdlodeals.com Tenant/Buyer site
First of all thank you to everyone for the quick and detailed responses. The property is not in probate. The seller is the current owner and he simply purchased the property a few years ago for his now deceased father.
On the subject of short selling, I believe michaelmangham put it perfect. No bank will accept a short sale when there is positive equity. I also find it hard to believe that someone would take less than what they owe on a home when they could probably list the property and make money.
I live in and invest in the Phoenix metro area. I'm sure other investors from this area can tell you that it's a bit slim on finding the 20-30k profits on deals where you don't invest a significant amount of money. I'm sure this can be done much easier in other areas but I'm sure you REI's from phoenix know how the market is here.
Going and looking at the property will give me a better idea of renovation costs, but the property sounds like it is in some decent shape. I feel like adjusting for 10k in repair costs should more than cover what is needed to be done. Also this being my first deal I am definitely willing to take a smaller assignment fee. Something like 2-3k would work great for me considering the time invested so far into this deal. With it being my first assignment I'd go as far as saying the simple fact of learning first hand how a transaction like this will work is payment enough. That right there will give more room to the end buyer for adjustment.
As stated in my previous post allowing for the buyer to pay all closing costs on the purchase, 10k reno costs, 10k profit, and my 5k assignment, the investor would have to sell the property for at least 142k. I know there will be closing costs on the other side but given that comps are 163-167k for retail, thats almost a 20k spread to account for those other costs, coming out to more profits, and a little cushion room if reno costs go a bit above the original amount.
Best case scenario, reno is under 10k, buyer sells the house for 162k and banks a profit of 30k minus closing costs on his sell side. Even allowing for 20k in reno would mean end buyer would have to sell the property for 152k, Which still leaves some room.
Like I said guys I am new to this and my reasoning is simple, but I believe it makes some sense.
Please keep the comments coming. You guys are awesome and thanks for your time!
-Zach