Owner Wants $800k
ok, I've been talking to this owner for 3 yrs.
This is a brownstone in NY that hasn't been touched in 30 yrs. The seller has 3 buildings with small mortgages on all of them. I'm guessing they are using the money for income (reverse mortgage for seniors?) because they do not have tenants paying market rent. The market is out of control in NY as you know...shells w/no roof are going for $ix figures.
Owner has a $350k mortgage as per the public record & when someone asks about the smaller brownstone the asking price is $800k "as is". Get this, the seller doesn't want to give anyone a contract....seller is expecting a buyer to get an appraisal and go straight to the closing table. While this market defies logic, it's not that hot and neither is the block relative to other blocks in the n'hood.
I can rehab @ cost. The 5 min phone conversation today was around the seller "helping" me to get the rehab done & cashing them out when I re-fi. Since they are older, my angle has been "the daughter they never had" trying to find an affordable home in the area.
I have to check the C of O & get the appraisal done, but the goal is to convert the brownstone into 2 duplexes -- cash the seller out after rehab -- & then convert to condos (exit strategy). The seller doesn't know about the condo conversion. I can sell the duplex condos for ~ $600k each.
Question: How would you structure this deal & what would you offer (i.e. as is appraised value, ARV less rehab costs) to tie up the property? We're meeting Mon.
As far as I am concerned, there are 3 ways to make money when flipping real estate:
1. Buy from a modivated seller at a discount
2. Change the use of the property to increase the value
3. Sell to a buyer who is modivated to pay more than the property is worth to an average buyer
In this case it seems that you are doing mostly #2. I don't know the NY market well but it seems that $800k is high for the current use of the property. Converting to condos is a very good option although a a zero lot line or patio home may be a better option for such a small property.
The gurus say to purchase property at 70% ARV minus rehab cost and in this case conversion cost. If you've got less than 40k in costs, you've got yourself some potential.
The whole concept of being a real estate investor does require you to purchase property. As I said, I don't know the NYC market well so it may be that you've got a great deal on your hand if your competition is buying property at a much higher purchase price to ARV ratio. In this case you may be able to flip the property to another investor, possibly with owner financing, and make nearly as much money with far less time and effort.
I'm not a big believer in perfectionists. My philosophy is 10% of the effort; 90% of the result.
GOOD LUCK
Awesome Deal, Great Job! Sounds like you have good rapport with the seller. Would they allow you to leave the exising loan of $350k in place while you rehab the property if you were to give them a good down payment at closing and they carry back the rest until the completion of the project.
If you can get terms on a project I am always willing to pay just a bit more. I hate having to pay points and closing costs!
I dont know what the rehab costs are, or what your cost of money is, only you know the market better there then any of the rest of us.
My thoughts are this... If you can do this deal and if everything went wrong through out the deal, could you still make money? If the deal is so tight that everything has to time off perfectly in order for you to make a few bucks I might reconsider. But you know your market.
Keep chasing it, you are in a great market!
What exactly is a brownstone? I am from the midwest. I have an idea but very unsure. Would there be any zoning issues?
ok, so I will offer THE LESSER of "as is" appraised value or 70% ARV less rehab & conversion costs. I can do the rehab @ cost. Now this sounds like a sub2 deal, which I don't fully understand.
Anolimitsky (or anyone) please explain this statement - "leave the exising loan of $350k in place while you rehab the property if you were to give them a good down payment at closing and they carry back the rest until the completion of the project."? Not sure what happens after the rehab.
To give you perspective on the market, APARTMENTS in the n'hood are 4sale as follows:
-- 3-bedroom Co-op apartment $300k
-- 2 bedroom in modern 24-hr doorman building built in 2001 $265k
-- Brownstones $500k+ shells, prices vary from $600k-$1.5mil & up depending on location
Fmmp - In this n'hood there are mini mansions. They are truly diamonds in the rough. Do a search on the net & use keywords "NY brownstone". They are in Manhattan & Brooklyn for the most part.
Sounds liek the n'hood is in b'klyn or harlem with those prices. Manhattan is much higher right now. I'd love to find some 2 beds in Manhattan right now for $265k!
nyjosh,
There are some new condos & more coming in upper Manhattan. I'm not a fan of co-ops unless it is a dirt cheap sponsor unit.
This is alittle off topic, but there was a question about Brownstone.
I live in a town that is considered the Brownstone capital of the world. Lots of NY buildings were constructed with the brownstone that was mined from our town. Check out the info at the following site:
www.portlandct.org/Portland/intro.htm
You can see a pic of one of the quaries used many years ago.
What do you consider upper manhattan? 80's to 90's? Anything higher than that gets questionable. I know Harlem is turning around, but it still isn't there yet.
Quote:
On 2004-08-30 12:38, learntherules wrote:
nyjosh,
There are some new condos & more coming in upper Manhattan. I'm not a fan of co-ops unless it is a dirt cheap sponsor unit.
nyjosh,
If you wait any longer to get into Harlem, you're looking at 7 figures for sure!
Go with your gut feeling and walk away what the inspector found today might just be the begining of a costly expense.
Are you kidding me? The seller is looking for a sucker. If he has another offer tell him to take it.
Also, who cares about fixing the damage, what about the cause of the flooding???!!! Until you deal with the flooding any money put into the house is wasted.
The building is starting to sink? Can anybody think of a worse thing to deal with? A sinking foundation! You would be the owner of the Titanic!
There are only 2 reasons I would think of buying this place.
1) if you could rent it all out and make a ton of cash flow for a long time and just let it rot away and eventually bull doze it all.
2) If I was capable of dealing with the flooding and rebuilding myself. If you could do this work yourself, you would be able to figure out cheap ways to accomplish it and guarantee that in the worst case you could do what ever it takes to make it right, you wouldn't be hurt too bad finanacially you would just be investing alot of your time. If you get into the worst case scenario and your only way of dealing with it is to write checks to contractors you would be at their mercy and it would be a disaster.
Yeah, don't walk yet. Make your offer, based on these new findings.
Looks like you're offering $290,000 to me.
Btw, if a realtor told me "3-fams in this area can be sold for at least $400,000," I'd ask to see the comps.
I say, figure out what YOU can do....then let Seller do the walking. They may call you back in 60 days.
If this were an ordinary rehab you might want to consider this but, you have several uncertainties. First is the ARV, second is the cause of the flooding which needs to be addressed as pointed out by The-Rehabinator. The third issue is that since you are using contractors there will be holding costs while the work is being done. My contractors have been pretty good about identifying what needs to be done at the front end so that final price has been pretty close to their estimates. However, most have been poor estimators on the amount of time required for doing the work. Yours sounds like you will be peeling an onion.
Thanks for all the warm answer!
What I did today was that I wrote up a long letter to the sellers, letting them know what is really going on - they don't live here and might think this property as a gold mine in its perfect condition.
Anyway, my plan is to walk away if they don't comprise somehow on the sales price, 'cause we definitely don't want to peel an onion like this with bare hands.
The tri-state area knows no logic when it comes to RE prices. My partner does construction in NY and we wouldn't offer $290k on this deal DESPITE the fact that most of the work can be done @ cost. If the seller lives out of town, put your proposal together (pix, repair estimates, comps, etc.) and keep in touch. They probably do have other offers because people are choppin up houses into [illegal] rooms and clearing a couple G's per mo. Unless you want to be in the rooming house business, be sure to stick to your model (i.e. buy X% below appraised value, X% ROI).
OK,
Obviously you are qualified to figure out what the comps are and the FMV of this property AR.
Where you are weak is in the amount required to repair and what is involved.
YOu have one estimate, get another or two. I like three men in the boat....
Then you should know what your looking at, place a 15-20% contingency on top of the estimate and then you have great figures and ammo to go to the seller with for a price adjustment. a house that is settling does not bother me if it is over 20-30-40-50 years or damp basement etc.
Get a pro on board!
Best of Luck!
[addsig]