Rehabbers And Foundation Problems??
I have found a propety that I can buy at a huge discount for 40K and it is appraised at 160k. The entire house needs 33 tiers to make it right which will cost around 50k. This work can be done in 1-2 weeks and the work is guaranteed for life and is transferable. The rest of the rehab will cost around 20-30k and this house is in a very hot area. I am nervous to put it under contract because I don't know if any investors will want to deal with such and expensive project. I think that most buyers (end buyers) will have a problem buying a house that has had major foundation reapair; even if it has a lifetime warranty. What do you experienced guys think???[ Edited by pannet on Date 04/20/2004 ]
Oh, the foundation work doesn't actually worry me that much. It s the other numbers that get me.
$160,000 FMv
-40K acquisition
-50K foundation work
-30 K renovation
-------------
120K total basis
= 40 K "profit" or 25%--
and I have the impression that at the end of the day you want t wholesale this to another investor. He's going to want to buy at a 20-30% discount, which means your margin is gone already.
Ok, Here's the numbers:
house appraisal = 160k
purchase price = 40k
total repairs = 80k (high balling it)
my fee = 5k
160k - 80k - 40k - 5k = 35k in profit
Do the math and my buyer will make 30 to 35k. I don't know what investors are making in your area but this seems like a pretty damn good profit for one rehab job. My buyer is also a cash buyer which cuts out any holding cost and yes I forgot the closing costs which won't be any more than 2k. Please let me if I'm missing something here!!!!
[ Edited by pannet on Date 04/20/2004 ][ Edited by pannet on Date 04/20/2004 ]
Hey,
You say your buyer is a Cash Buyer, so you must already have a specific investor lined up. Why don't you just ask them about the deal??? Wouldn't that make more sense.
If you do not have a specific investor lined up, then you need to remember that a "Cash Buyer" doesn't always mean they have $125k in their pocket. There could get Hard Money and still be a Cash Buyer from the sellers prespective.
To get back to the earlier point, there is NOT enough money in this deal for most wholesalers
Bruce, could you elaborate on you response. You said there's not enough money in this deal for most wholesalers. Do you mean they charge more than a 5k assignment fee? In your opinion what would be your offer price on this house to make it a good deal for me and my buyer??? I must be missing something because i'm happy making 5k on my first deal and I woud think my buyer would be happy making 30-35K!!!! What am I missing?? :-? :-?
Ok, your buyer's NOT going to make 30k-35k. Assuming he's going to have to borrow the money to buy, he's got acquisition costs(even though you say he's an all cash buyer, he COULD be using Hard Money, which is expensive). Then, he's got holding costs and putting the finishing touches on the house, and if he lists it with a Realtor, even more money goes down the toilet. Oh, and a WHOLESALER sells to investors, NOT retailers, so there's even less profit, because an investors not going to pay that much for that house, he's not going to pay more than, say, 65% of ARV, 'cause he can't and still make money.[ Edited by jam200 on Date 04/21/2004 ]
Hi Pannet
You asked me to look at the revised numbers and I did-- I'm still not impressed but lets start thinking creatively here.
So you seem pretty sure of the numbers on the foundation work. How did you arrive at the $50k? What does it mean it needs 33 tiers?
Are you planning to flip this to a rehabber or to do the rehab yourself and sell to an investor?
Whats your credit like? (oddly enough this is a situation where bad credit is a good thing).
Tell us about the seller, about the foundation about the neighborhhood. God is in the details.
Ok, I had an engineer look at the house inside and out and he estimated a 40-50k repair job. 1/3 of the house has actually sunk down 2 inches and there are other cracks around the entire house. The seller inherited a house from a client last year, and actually hasn't lived in this house for 8 months. She is selling the house she inherited and the one I'm looking at , and has already began building a new home. She knows the house has major issues and has repeatedly told me she is entertaining any offers. The house is not on the market and as far as I know I'm the only one looking at it. The neighborhood location is absolutely excellent!! This is the only reason I am even considering this deal. I plan to flip this property to another investor after putting it under contract and charging a fee of 3-5k. My credit is just Ok( 550-560). I'm just trying to figure out my max offer should be on this house. I also don't understand what one of the previous replies meant when he said WHOLESALERS sell to investors, not retailers. If you guys could help me figure this out I woud greatly appreciate it. I'm just a newbie trying to make sense of everything!!![ Edited by pannet on Date 04/21/2004 ]
Offer what a vacant lot is worth in the neighborhood. A $160 house that needs $80k in work is probably worth nothing. Its almost certainly more cost effective to knock it down and start over. You say the neighborhood is excellent. Look around closely. Is the neighborhood good enough that a new house would be worth more than an older one with lots of issues? Would a larger house sell for more per square foot?
How to I go about finding out how much the lot is worth??
run comps, stop by your local real estate broker and ask him to look in the MLS service.
Commercialking:
So....is it safe to say that a house that needs more than 50% of its ARV in repairs should be priced as a vacant lot? I'm just trying to understand it because it will help me negotiate the lowest price possible when talking to sellers in this situation.
Pannet:
I would tell the seller the situation and see if you can go down evern further on the purchase price of 40,000. I think you are going to need more room in the deal to make money.....if you explain that you will have to knock the house down and start over and explain the severity of the damage, she will understand that this house will be hard to sell to other investors ,and she should take what she can get.
LEt us know what happens.
[ Edited by results_one on Date 04/21/2004 ][ Edited by results_one on Date 04/21/2004 ]
Well I don't know about the 50% rule. If the house is unique, if the market is higher, if lots of things (I don't like rules of thumb very much).
But there is a point when you should always consider the value of the underlying land. A budy of mine last year bought this very old very ugly hardware store for 600 or 800k. Buldozed the thing. I'm trying to remember whether he got a million five or a million six for the lot.