Need Advice: Sellers Are Upside Down Big Time!
Went and looked at a house today and was disappointed yet hopeful. I have been talking to the sellers on and off for about 2 weeks, they were selling FSBO but just listed with a Realtor last week. After seeing the Realtors pics of the place and talking to the owners it seemed to be worth a look. The house has got to be completely gutted, the roof leaks, the basement has standing water in it, the septic is blocked, the house leaks like a water fall, the house smells, their are 5 kids, 2 adults, and 1 grandparent living in it 
They want a bigger house and they asked 115K when it was FSBO; the Realtor listed it at 125K (raised it to get the commission) they owe 92K. It would take 40K to get it in rentable condition not counting any big septic problems. Does anyone see any way to make this happen?? The seller almost begged me to make an offer when I left. I was going to offer 50K but they are so under that they would have to show up with 40+K so I doubt that will happen. Any ideas are definately welcome. 
are they behind on the payments? Also, what is the FMV - after repairs?
Good questions. I forgot to ask about the current payments question. And I have a Realtor running comps for me and should get back to me by Thurs., hopefully tommorrow. My question is if $125 is the general sales for that type home (based on what the Realtor listed it); how was she expecting to move it at that price when NO ONE being an owner/occupy would take it or even walk past the front door. If she discounted the sale to $125 based on the condition then I will be really interested to see what "my" Realtor comes back with for comps.
What is attracting you to this property? Why do you think that it is a good deal? It sounds like this property is going to take alot of work to repair. Water can do alot of damage, and then there is mold...
Be sure to do your research, get comps, estimate repairs, extra cushion for repairs, how to finance acquisition and repairs, holding costs during repairs since no tenant.
I have found that it is useful to concentrate in one or two areas that I am comfortable investing in. I become familiar with the prices and FMV for the homes in that area so it may be easier to identify a good deal.
The original reason I pursued the property is because the sellers are extremely motivated to sell. The FSBO listing was 115K which is very cheap around here and knowing that the Realtor raised the price to 125K, I knew the seller was at least willing to take 115K. The seller thought I called because of the MLS listing and had no idea I picked them out from a two week old paper. They told me the house needed 1K in roof repair and minor bathroom repair, plus a "possible" septic problem and they needed out quickly by mid-August at the latest. It was a classic case of "denial" or just false advertising to get someone to come thru the door. So what went from possible great rental went to demolition "rehab". I had a contractor I work with go with me so I could get estimates on the $1,000 roof job and the "minor" bathroom repair. Good thing he went because I was in complete shock at the misrepresentation they gave me over the phone about the place. Also, their estimates were not in writing, but verbal.
Get your estimate from the contractor in writing and a date that it is good through. Follow the advice given above, I think there is $$ in rehab because the field is not so crowded. I think I posted the fact that only 20% of contractors are in the remodel market and 80% of the work is there. That said, high margins should be maintained and their problems aren't yours (I am the biggest sucker around for a sob story) let the numbers do the talking. If the comps work out I would give enough for them to get out paying the realtors fees 100k max. molf is an issue now and can come back to bite you if not done right.
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First of all, I think you must be very careful here. You stand to lose a large amount if the numbers don't work out right. Which leads me to number two. Thats all you should look at this house as. Numbers! This may sound cold, but you must not let the fact that the owners are desperate work against you, rather make it work for you. Its their fault they junked the house up and still owe 92k. You need to crunch the numbers when you get the other vital info and submit an offer based on that. If the numbers whittle your bid down to 93,900, so be it! Submit that. Don't let the house be anything but numbers. Thirdly, it is interesting that you mentioned that the realtor raised the price for his commission. I have the exact same problem with one of my potential deals. That is not a problem though. I found out just today that the realtor must present a written offer to the owners, or risk losing his license. Your sellers sound motivated enough not to be talked into refusing this offer by some greedy realtor. Again, I apologize for my somewhat strong statements, but I do not want to see a fellow investor get burned by a bad deal.
The Ghini
I don't hink they raide the price for their commission as 10k is only $60-0 in a best case for the realto scenario. They do it (in my opinion) to get the listing. People want to list with the agent that promises them the most $$. Everyone thinks their stuff is worth more than it is. So you have the honest realtor telling you your dump is a dump and only worth 100k-115k and the slickster saying list with me I think it is worth 125k. Slickster gets the listing from 90-180 days and so it doesn't matter when they have to drop the price to sell because he still gets a cut whereas unless the honest realtor brings a buyer he gets nothing.
In real estate listing the property is everything! rarely does the listing agent find their own buyer.
tworedaces,
TwoWordsMyFellowREI...
WALK AWAY.....
...remember The I in REI....INVESTOR
...this sounds like a (REL) liability to me.
...as always,
GoodInvesting, Rocky
I hear words like Gut , septic, water, odor it does something more to me than just roof bath kitchen. The risk sounds huge and it is there problem alone, untill you buy it. I don't think I would pay more than 50% of finished market value. I would make the offer cause they might bring 60K to the table. That is there bussiness
The comps from 2 separate realtors for a complete rehab in the area tops at 160K. The estimates for completion have been 30-50K so I am betting on the 50K as the closer of the two. I was going to offer 82K the problem is that they owe 92K split between 2 mortgages, of which they are current. Can anybody give me any ideas on how to structure a deal where they have to actually bring $$ to the deal to sell. I doubt very seriously that they can do it, otherwise they would have used it to fix the place. Everyones posts have been helpful. Thanks for the responses!
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Having the sellers bring money to the table is simple. If they accept an offer for less than their payoff(s), then they'll have to bring funds to closing in order to actually sell the property.
I personally think your offer would be the max on this deal (and I'd still be cautious). You might post this over in the short sale forum to see if there is anyway to short a current loan.
Good luck
Roger
BTW, I like your tagline
Its easy - Determine the True Market Value in Fixed-up condition.
Substract the rehab, transfer, sales costs & your estimated profit.
That would be your highest offer price! Start 5-10K's below that.
If they dont want to accept your highest offer - WALK AWAY - THEN IT IS A BAD DEAL.
Of course - you also need to determine if other houses are selling fast in that area - get the info from your RE Agent's Multiple listings.
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I'd agree with Rajwarrior.
Short Sale is the way to go!
But remember, if the numbers don't add up and you aren't making a profit ... WALK AWAY. Time is Money. There are LOTS of deals out there. Real Estate Investing is a numbers game. If this one doesn't work out, the next one will!
Hope This Helps!
Mrs. Meltzer
Shortsale with the bank and then wholesale the deal - therefore you don't own it and you make $$ on it.
Oh! as far as the offer, go low. If it's not accepted, move on to the next deal.
Good luck!
make a low offer, if they accept great. If not, move on to the next one!!Dealing with realtors unless they are creative, can be tricky.....there are plenty motivated sellers out there with better homes and less work.
Prosperous investing,
td
There are way too many real estate opportunities out there to waste away on this.
What is the land worth? Maybe a demo would be in order...
Good Luck
Joe
If they are current on their mortgage loan there is absolutely no incentive for the bank to discount the loan or short sell it.
He/she would need to be in default for a proposal to even be considered. If the folks are making their payments why would the bank want to take a loss on it???
Unless the sellers will be going into default, I would approach this as a sub 2.
J
If you have that much water consistently it a problem and that bad smell is probably mold and mildew. Mold and Mildew are expensive to remove. It sounds like this project will run you $40,000 - $60,000 to get to habitable condition. If you really want this property the first thing I would do is determine FMV after repair, then subtract $60,000 for repair $10,000 close and how many months of payment and utilities it will take to fix it. Now subtract what you want to profit. Subtract another $10,000 for all the stuff you forgot. This is your maximum purchase price.
Now here is your angle... If it is still a go after you run the numbers... Go talk to the home owner about their payments (i.e. are they near foreclosure etc.) in this conversation ask how much their Home owners insurance is costing them. Ask if it covers flood damage. If so... go to contract, specify in the contract that the roof be repaired and the flood and mildew be taken care of... If they have flood coverage their insurance company is obligated to repair or replace any items with possible mildew or mold during the cleanup.
Now you have a great opportunity. (Although it stands to reason that if they had flood coverage they would have used it.) But you never now till you ask.
Good luck.
Thanks for all the responses. I decided to WALK and have already found another property to look into. This one is a duplex in the same neighborhood but with not nearly as much work as this one. (I hope)
It is vacant and I haven't been inside yet but looks better from the outside then the other. Thanks again, this is an awesome site especially for newbies like me.
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