Playing With Numbers....
Being interested in real estate again lately, I have been looking in the local paper for deals. I was just looking in the paper and found a single family home with 3 bedroom 2 bath, 1 car garage, an efficiency, 1400 SQF in southwest Miami. They are asking $185,000. Looking into it further I found they purchased it late 2002 for $144,000. Armed with this knowledge, accounting for how much they may have put into the house (10k down, 10k in payments in 2 years leaving 124,000 owed) I thought of offering around 145-147K. 10-20k cash now, the rest in 6 months. We would split the closing costs. Is this too much, ie the seller making out like bandit? I have a partner/friend that will lend me large sums of money as long as I give him half profit.
I could then sell it for around 165-180K however it sells fastest.
Without talking to the owners first I know this is silly but I am just number crunching to see any potential offerings that may entice the seller.
What do you think?
Basically I would be putting nothing out of pocket except for marketing, and the seller would be getting his/her equity back.[ Edited by riot8ap on Date 01/09/2004 ]
Your numbes don't quite work using compound interest, which is most likely what their loan uses. if they purchased for 144k 18 mo ago, using 10k down, they still paid 10k down out of pocket, so why would they be inclined to discount that as if it never existed? The 10K in payments was probably more like 15K in payments, and they would only have paid down approximately $2500 of their principal in that time, They still probably owe $132,500.
Next, at a modest appreciation rate of 6% the property is worth a minimum of $157,500 if they paid market value when they bought it..
Nothing that I saw in your post indicated that this is a distressed sale, so what is your hook that you will use to convince them to discount so heavily to you?
Sometimes additional knowledge is a bad thing. One thing I have learned in using your method is that what the seller paid for the property has NO bearing on the selling price. They arrived at that price using a method they are comfortable with, and I highly doubt that they are going to discount deeply.
While you and I may think that they are being greedy, would we not try to do the same thing? And if we were in no hurry, would we not wait for a retail buyer? I sure as heck would, and do.
[addsig]
Why not do the obvious? Just talk with the seller and ask some questions.
Upon further thinking and talking with other homeowners selling their houses..it is too much work to find out for every house. Either they are motivated or not...and if I think they sound that way on the phone then I should work out a deal. Thanks guys.
riot8ap,
Now you're talking! Motivated, or anxious sellers are the best kind to talk to. Prescreen the homes you're interested in. The first criteria is the attitude of the sellers, after that come neighborhood, price etc. (In no particular order)
You will be able to work better deals with prople that have to move than with those that are just tninking about moving.
Good luck,
Jeff