Found My First DON@TWANTER
Hello, As I have been a member of this site for just a few short months I thought I'd be able to get some help with my first project. Here's the situation:
I found my first don't wanter. The property is located in a very nice section of town with a high appreciation values (over 200% in the past 5 yrs). The current owner is moving out of state and wants desperately to get this property sold. She originally was asking 590k, but since has lowered the price to 545k. The FMV is about 565k. The house needs some work, about 70K and I am lining up investor as I write. But what do I do next to insure that I will profit from this deal? ANY suggestion would be a BIG help. Also she wishes to close by the end of the month.
Thanks.
[ Edited by wannabeinvestor on Date 03/12/2004 ][ Edited by wannabeinvestor on Date 03/12/2004 ]
I'm confused as to where you see a profit in this deal. The house is worth 565K, your buying for 545K and it needs 70K in repairs, for a total price of 615k for a 565K house? Are your numbers a misprint?
I was hoping to flip it to a rehabber or another buyer for 590k. Is this a possibility. I don't want to own the home, just want to pass it on to someone who could/would purchase it for a profit. Is there ANY way this could be a profitable deal?
The comps in this area are at least 100k more and the 565K was quoted by an appraiser. Hope this helps. The house is in a high end neighborhood just outside Boston where the market is booming.
I dont see how this could be a profitable deal as it would be hard to find a buyer who will buy the house for more than its worth. Even if you could get 100k over 565, 590 + 70 = 660k, not much profit there.
[ Edited by sanderso1019 on Date 03/12/2004 ][ Edited by sanderso1019 on Date 03/12/2004 ]
People buy real estate for exaggerated prices here all of the time. Just today I spoke with a client of mine who, after I did the landscaping work, sold the place in ONE day for more than10k FMV. I just want to jump into the market before these deals run dry.[ Edited by wannabeinvestor on Date 03/12/2004 ]
I'm confused, wannabe. What is the value of the house after the repairs are made? What could you sell the house for in good condition?
Please excuse the confusion this is still pretty new to me. To clarify, normally homes in the area go for about 800+, but since this place is smaller, after repairs it could be sold for 650-700k. The deal in this is that the seller is willing to sell it for 545K. I hope I'm making sense. Please keep the questions coming.[ Edited by wannabeinvestor on Date 03/12/2004 ]
70K in repairs seems like a large number. How did you arrive at that amount?
This is the price the seller said that would make the property a ''showpiece.''
first off, never believe what the seller says. don't even use it as a guideline. You want to flip it? get an investor you know to check out the house and see what they think. The seller could be hiding stuff from you, after all she is a don't wanter. Why should she tell you everything that is wrong with the place if she needed to get rid of it. And secondly, never plan to flip based on an appariser's appraisal. Get some real comps. Find property with the same sq footage, same number of bedrooms and bathrooms, and see how long they sat on the market and how much they sold for. if most houses in that area are selling for 600k but a couple of properties sold for 700-800k, don't bank on holding out until someone comes along for that much. Get what you can get....
You need to get a contract on the property stating you are the buyer for "X" price, and she agrees to sell. Have a clause stating that agreement is subject to a home inspection. Have a general contractor come out and give you an estimate for the repairs...they may be more or less. You could also contact a RE agent who is selling houses in this neighborhood and ask what this house lacks that the others have. But first things first, get the property under contract.
Also, how much does she owe on the mortgage? are there any seconds or any other leins? What if she only needs 300k? What if she just wants 100k for a new car or something else?
wannabeinvestor
Here is the deal: assuming you can sell a house at a certain price "because houses always sell for over value here all the time" is a guaranteed investment method that will make you lose money, in a big way.
Get the following info on the house:
* # of beds
* # of baths
* GLA (gross living area) or square footage of the house
* Style of the house
* Amount of land that comes with the house
* Any special features to the house (deck, fieldstone fireplace, pool, etc.)
Once you have this info, you then have the BASIC fundamentals of the property and the neighborhood. Then you must run comps.
You can do this in a general way to see if you are in the general ballpark by going to www.realtor.com and looking for LIKE HOUSES, as close to the features of this house, in the same town, as you can.
It is critical to learn, and continue to learn, how to determine ARV (after repair value) of a home, as that is its ultimate FMV (fair market value), and knowing this, in addition to REALISTIC AND CONSERVATIVE repair estimates, will show you if there is something worth looking at closer.
You also have to account for closing, sales and marketing and holding costs (if you are looking to assign the property to an actual rehabber, these costs are not your concern, but the first two are critical to see if there is room for a small profit for you, and a much bigger profit for the rehabber)
Eastern MA is tougher than most places, and you will need to educate yourself and market a lot to find a deal that is profitable. I'm afriad this one sounds like it is upside down, which might be why this person says they don't want it, but then they might not want to do what is necessary to extracate themselves from the situation.
You gotta have motivated sellers WHO ARE IN REALITY, because motivated sellers who are delusional are no better than "wanters", and in fact can be worse.
Take care, Dave
So far all great suggestions. I will do more investigationsthis weekend and in the coming week. Yes she is very much a don't wanter and says she moving for family reasons. She says she'd be happy with 30k net after paying back the 500k owed on the home. Should I use a PNS to get it under contract or some other form? Thanks for your suggestions.
is the 500k for the first and second or just the first? if it's the first and second, i'd look into discounting the second (or third if there is one)
do not listen to millionby30, with regard to "just get the property under contract".
B.S.
if this property turns out to be worth $600k, needing $70k in work, and this don't wanter won't budge down from $545k, why in he11 would you recommend tying up a property, telling this newbie to basically wing it, make up a story, and start off by giving him self a bad name around town?
Find out if there is at least a potential deal first by learning how to determine value, THEN tie it up, and once tied up, THEN bring in an investor and see if they want to buy your contract (assignment) for $3-$5k or more depending on how profitable the deal is going to be for the rehabber.
Do we even know what kind of work needs to be done? Have you inspected it and seen it yet? Do you know how to check for rotting sills, bowing foundations, black mold, etc.? Do you know what those things are?
Not trying to scare you, trying to give you some assistance.
You gotta take action, but being a bull in a china shop just tying up properties before you have any idea what values are, will be, and profit potentials is a sure way to ruin your name before you even get in the game.
Good luck, Dave
I think the 1st problem is you are not thinking clearly. You are motivated by fear: "I just want to jump into the market before these deals run dry"
Deals come and Deals go. Dont get burned by the fear that you MUST have this lousy 20K profit or you will never make it.
You need to consider all the factors of this deal. How much will it cost you in closing costs (10K+?) how long will you have to hold it; You'll have to pay the mortgage that whole time (3-4K /mo), taxes, liens, assoc fees, etc. etc..
If you let emotions rule your decision, youre lost.
never be a motivated buyer
Thanks so much Dave. Your approach makes logical sense. There are many things that I must learn in order to make this deal a go for me. I have not inspected the property, and will plan to bring in a contractor who knows what to look for. There are many sharks out there, and I really don't want to be one of them. I would like to start with a healthy profit in my investment career and not sacrifice my sanity or morals. Is this possible or am I dreaming? Nonetheless, DAVE you have been very helpful,
nasof,
you are right on the money. He has been trying to make the deal work in his mind, as opposed to learning the mechanics of how to establish value, which is an art and not a science.
I think he is listening.
you're quite welcome, good luck, and check your PM inbox because I sent you a link to our MA investors meetings. they will help ground you with investing in this state, because after all, where are all the laws made? MASSACHUSETTS!
I'm a girl and I am listening.
I would ask "what about purchase option investing? or what about sub to?
With a purchase option you set the price today, put a rent to owner in there and set the option price for them at what the market will be in two to three years captureing the future appreciation.
If the propertyies are going up 40% a year all you have to do is hold onto it. 1 year would be 200K. Heck, buying at value and holding would be a money maker.
A good book to read in many ways it "How To Create Multiple Streams of INcome? by peter Conti & David Finkel.
YES I read this book just last week! I guess that was my line of reasoning when I first posted, ie doing a L/O. So let's say i got a for a L/O. what paperwork would I need. She really just wants out and only wants to pocket 30k when the deal is done. Maybe I could find a buyer who wants it. Actually some contractors I know are already sniffing out a deal. (Also, a similar house is on the market for 740k. ) Open to ALL suggestions
Everyone's right!! Don't ever believe the seller.....always double-check...EVERYTHING.
I say offer 500K. If the seller is really that motivated, then she will definately negotiate a lower price. Tell her you'll offer 570K minus repairs costs. Thats a generous way of getting a discount. Offer more than she's asking but discount repairs in order to satisfy a your pocket.
Bottom line ......on a deal with numbers this big..... your payday should also be BIG.