Would You Have Turned This One Down?
I have yet to make my first deal so I am anxious to get started. I found a SFR in the Sunday paper listed by a wholesaler.
It's a 3br/1ba 1700sf SFR. He's asking 43k, the tax roll says 77k in 02'. Sounds good right? I called and the guy and he said it would need about 15k in rehab, but should bring @85k ARV. Gave me permission to enter the property(had a hidden key on site) to evaluate it. I took my brother-in-law(happens to be a very successful home appraiser) and we went to the prop. It is a giant house located on decent street, however the block it's in is primarily two family and rentals. Some questionable structures and tennants.
The house is on a stone foundation that is in fair condition, some foam filler noticeable. The roof looks to need to be ripped off and replaced(three layers already). The interior is almost completely covered in paneling and glued down carpet. Most the paneling is shot. The kitchen needs to be gutted, and the bath needs new floor and walls. It's listed as a 3br, however, you have to walk through one room to get to the other. In my town that is a no-no! I would have to build a wall to form a hall in order to list as a 3br, which would cut down dramatically on the size of the middle room. The back bedroom has walls that are very thin and in one spot a whole is noticed and daylight shining through! Most of the windows are in decent paintable shape, two need replaced. It needs a new furnace and water heater, the wiring looked OK, but no utilities are on so not sure about pipes. Water found in the basement, presumed from leaks in the foundation. The only good thing I noticed was the back yard was fenced, fairly clean and quite big! Most of the problems we found I can fix on my own. Even with doing the work myself, I figured more like 20k in rehab. The house could be made of 24k gold and still only bring 75-80k max in that neighborhood. I don't want any part of being a landlord, so that's not an option. Anyway I walked on the deal. Too much for me too chew on my first deal. I think I would be way over my head on this especially with very little cash reserves. I'm just curious what some of you seasoned guys think. Sorry to go on for so long but I know in order for you to come to any opinion, you need info!
Here's how I figure it would break down:
Asking price: 43k
Repairs 20k
Closing costs 4k
holding/resale cost 6kmin
total----------------------73k
Not much profit or wiggle room
So lets here it! Do I just have cold feet or was walking the right thing to do?
Sickdog
Sounds like you did the right thing for you. If you don't feel right about a deal then just say no and walk.
There is no deal here. Sounds like the wholesaler did not do his homework, hope he has good weasel clauses to get out when no rehabber in their right mind touches that property!
Good discernment... Dave
Sounds like you definitely did the right thing.
JohnCl
Sickdog - excellent job of being realistic and intelligent in your evaluation procedure. You are already 10 steps ahead of most newbies, the most critical step of the entire process is buying right. You blow it in the beginning and you are just scrambling to save yourself for the rest of the time you own it.
Where I'm at there are so many newbies in this market who are clueless that there probably would have been 5 of them fighting to buy that house. You can imagine what that does to the average price of rehabs, drives them up too high to make sense.
Sickdog,
Just one question. Is 43k the absolute least the wholesaler would take. That is not clear from your initial post. It seems like you did an awful lot of homework and inspection and feel confident you could do the work. Why not make an offer w/ enough profit room for you to feel comfortable, whether that be 33k or 23k, you never know it may be the best offer he/she receives. I'd keep it in your tickler file to check up on in a few weeks. The motivation for the seller may change dramatically when the next payment is due on the property. Good luck getting the first deal. That's always the hardest.
Thanks everyone for the vote of confidence and the kind words! My brother-in-law was a big help in pointing out details that I may have missed. Although even if he'd not gone with me I still would have walked.
wstone1- The guy told me he does six or seven deals a year. He happened to come across this one and didn't want to pass it up, but didn't really have time to mess with it and just wanted to sell it fast. He did say right up front that it was rough and he also said he was going to make a couple grand on it "and that's it".
The bank that ate the property bought it back for 46k, back on Jan 8, 2004. I doubt this guy paid much less than 40k for it. That is a good thought though. I will check back in a couple of weeks and see where he's at on it. If he's real desperate, it might be worth it for 30k. Course I'll start at 20K and go from there!
Found three more today to call on so no biggie!
Later,
Sickdog
What would have made this deal a good buy?
I'm looking to wholesale, If I were to come across this home, what could I have done different?
What if the wholsaer could have talked the owner down a little more and offered it to you for, $33k-$36k ? Would the deal work then?
This was good for me to read, a few things to keep in mind when I find something I would consider putting under contract.
JB
[addsig]
Well I'm not 100% sure! I don't have any "real life" experience, but I would think at 33k this would be do-able. It would allow enough wiggle room that I could sell cheaper if I had to. Also allow more room to hire a pro to do some of the more difficult, and time consuming work. I know how to hang drywall, but I'm slow at it. This house would need a truck load of it! It would have taken me months to complete on my own. You know the saying-"Time is Money"! I paln to check back with this guy next week to see where he's at, I'll post an update.
Thanks!
Sickdog
Just because there's opportunity, doesn't mean its a good deal.
There are many that try to turn every opportunity into a deal. These people will end up losing there shirts.
I picked up 3 pretty good deals from a newbie that bought 10 houses in 6 months. He made a couple really good deals, but it was the other bad deals that lost him the farm.
In today's market you can't afford to make mistakes. A couple of years ago you may have been able to overcome some of your mistakes using the greater fool theory (i.e. even if you paid too much, there was a greater fool that would pay more).
In my market today (and many others across the country so I hear), things are pretty soft , so you have to be pretty careful with the numbers. Don't fudge the numbers if you don't like what you see and be certain you don't under estimate those holding costs!!
If there's no profit there, accept it and move on.
The good news is, there's more opportunity than you can shake a stick at, which allows you to be selective with where you spend your time. Just keep searching.
Melissa
Amen to that sister!
Sickdog
Update-
Contacted the seller today. He notified me the property is under contract. I noticed it is listed in the MLS for 41,900.
He said I could submit a back-up bid in case the current deal fell through. I told him to call me when he was really motivated and that I wouldn't consider giving anymore than 35k. He laughed.
It will be interesting to see how this turns out!
Later,
Sickdog
I went with my brother-in-law last week to a house he was looking to buy to live in then rent out later. It was brick, big,and had a room added above the garage but he said needed a lot of work. First thing I saw was a flat roof area above the living room which abbutted the siding on the room above the garage - leak alert!!!
Second the ceiling in the living room sagged 6 inches in the middle - this was the only problem he caught - (he's a newbie) so he called out a foundation expert friend to look it over with us. It was mudded and painted well, though, so you couldn't see any evidence of leakage. There were of course holes in the walls, a broken window, flooring peeling up in the bath, bath needed new fixtures, all appliances had been ripped out, it was owned by a bank and being sold as-is. The upstairs room had carpet that stank -probably water or mold. The theshold was rotted out as was the front door jam. Our expert friend looked at the bricks which were painted and showed us where they were separating from the walls and settling unevenly. There were cracks but they were harder to detect because of the paint. Then he asked if there was water under the house - which there was, so we quickly walked.
Sickdog,
Congrats. It's harder to say no to the first deal than to try and make it work on paper only to learn later that you should have said no. I unfortunatley learned the hard way, but I learned.
Who knows, maybe the laughing owner will be crying for you to take this property if this current contract falls thru.
I really do not want to step on anybody's toes
FIRST you should have a contractor do the estimate of repairs,Im sure you brother in law is good with comps ,its a far cry from reality.Where did you come up with the figure for repairs's.There is a guide out in the library (contractors estimating guide)that will help you with www.repairs.It teaches you cost of man hours to do a certain www.job.If you can do most of the work YOU SAVE MONEY
Take care
Have a great Day
Tim
I did not want to upset anybody,an a appraiser is a great feild to be in, but it is different from being a contractor or somebody who feels they can do the rehab.
So i have said enough
Take care
Have a Great Day
Tim
At that price, I would have turned that house down also. There are too many other deals out there that can be snatched up and not as much work with greater returns!!!
Tjbab, thanks for responding! No toes stepped on here The seller told me on the phone 15k in repairs. I knew going in it could be higher or lower depending on how he came up with that figure. Since I would be doing most of the work myself, I figured it would be lower. Then we walked through the place! I have done a ton of home repairs and fix it's. Never a total rehab, but enough to have a good idea the cost of material. My brother in law is fairly active in REI. He tends to buy SFR's to rent, and has a crew do all the work to get them ready. We both agreed, based on our mutual knowledge, that 20k in repairs was a much estimate than 15k that the seller suggested.
We may have been off a bit but not enough to make this fly. Even so, I had a real bad feeling about this place. Like I was missing something! Bad vibes or something!
Later!
Sickdog
Quote:
On 2004-03-04 01:27, melissa wrote:
Just because there's opportunity, doesn't mean its a good deal.
There are many that try to turn every opportunity into a deal. These people will end up losing there shirts.
That is one of the wisest posts I have read in a while on any real estate message board. Simple, succinct, well-written, and to the point..
I have been that newbie. You're brand new, full of enthusiasm, but clueless about what to look for and how much it will *really* cost to fix the property. You feel pressure to make a deal, so you go for it. If you're lucky, you don't lose the entire farm.
You definately did the right thing