BiggerPockets

My first duplex deal
The previous owner purchased this duplex in 2005 for $25,000 then sold it and carried the note. The person he sold it to defaulted on the loan in 2007 and it took him 15 months and lots of legal fees to get the property back. He didn't have much information on the property but stated that it would need a new roof, gutters and updating here and there. I was given a quote of $10,000 for repairs but when I did my analysis put it up to 15k. He was asking for 30k and I negotiated and we came to $5000 and me pay the back taxes and water bill, which is $1190.32. Originally, my strategy was to buy and hold but me being in Hawaii is proving quite difficult. I'm finding it hard just securing a property manager! It could rent for $650 for the 2bd and $450 for the 1bd. My next plan was to get a contractor in there, rehab it and sell but if I'm not there 24/7 cracking the whip, who knows when things will be done? Thus, I'm considering wholesaling it.

Analyses:
Buy and hold: Annual GRI 13200 x 50% OE=6600/ 22000 Purchase price & repairs=
30% Cap rate

Buy and rehab: ARV 60000 (conservative)
Purchase Price -6100
Closing Cost Buy (6%) -1200 (3% + 3pts for hard money loan)
Holding Costs -4350 (including ins+ tax)
Rehab Costs -16500 (including 10% cushion)
Closing Cost Sell (6%) -3600 (2%+ 4% Realtor fee)
Profit $28,250 / cash out of pocket $28,150= 100.3% ROI

Seems like a no-brainer but if I just wholesaled, I think it would save me a lot of stress. Any suggestions?
:mrgreen:

Knowing which city this may be located in might help generate responses

I'd definitely be extremely cautious. There are already a few red flags. Any time you are purchasing a distressed property there are inherent risks, and on this particular deal those inherent risks are enhanced by 1) you being so far from the property 2) the lack of information disclosed by the seller (or agent).

Can you also give us some more details on the negotiations? Our firm has a small distressed property fund and we've found on a number of occassions that a seller's attitude during negotiations will give tremendous incite into the condition of the property. The seller was initially asking $30k, how did the negotiations result in a $25k reduction (+80%) in return for you paying $1200 taxes / water bill? Does the seller appear fiscally savy? If so, is there a large hidden liability that they are trying to part with? Or are they simply motivated due to financial burdens?

It sounds like you are doing your due diligence so if everything continues to make sense it should be a good deal. Given this is distressed, I'd definitely factor in unusually high contingency. This will cost more and take longer than you anticipate.

Run all of the numbers & analysis based on a worst case scenario and if you can still live with the investment then go for it.

Good luck!!

Since you are FAIRLY NEW, I will say that it does not matter that the property is in another state. What matters is IF IT IS A DEAL OR NOT.

I would network with individuals from Rochester area and you can find them here or put it on one of the internet pages.

The price was REDUCED so fast and to much. Which is good if it was for the right reasons. Is this gentleman OLDER. Definitely seems like he is MOTIVATED, but you must determine what is his motivating factor.

I would get a licensed HOME INSPECTOR and have a FULL home inspection which should cost about $350 and that will let you know if the structure is good or if there is anything else wrong with the building.

After this you should be able to wholesale the deal or rent it out. A deal like this if it turns out to be what it is which would be a GOOD SOLID investment I would keep it and rent it out and then sell it to an investor.

What you have to consider is that once you get tenants in the units send them a pizza coupon or something and let them know that if anything goes wrong to notify you and keep you informed of what is happening. Treat the tenant like you would want to be treated.

The reason I am saying this is that I have units in another state and I have not had the same problems that others experience, but then again I run a business and this thing is GLOBAL.

Sounds a deal that is worth investing the money to investigate further and then if it pans out wholesale the deal or do some owner financing with someone.

Many ways to structure a DEAL from a MOTIVATED SELLER.

SUCCESS BREEDS SUCCESS

A quality inspector is absolutely necessary as is a good Property manager. Daniel (above) makes good points...don't forget to find out about, lead based paint, possible termites or other VERY expensive fixes.

What about title of the property? Are you positive the "seller" is holding title? Have you actually met the seller and seen the property? If not, this could be a scam, in my opinion.

If you call the recorders office there and give them the address, they will be able to tell you whose on title. Be real nice to them.

great follow through!

One last tip, if you plan on purchasing additional distressed properties in the immediate area, spend the extra time and money to really build strong relationships with those you will come to rely on (eg. inspectors, constractors, etc.) b/c they will be your eyes and ears on the front line and will make or break you.

SOMEONE TRIED TO STEAL THIS DEAL!!

The former owner called me and told me that a gentleman that expressed an interest in buying the home from me, actually told him I was backing out of the deal and made him an offer! I know that's a run on sentence, but I'm venting! Oh, how positively shady! A very wise investor in this forum told me to never give out the address unless you're under contract and, luckily, I am. Getting under contract is probably the most important thing a newbie investor like me should learn.

OH, THE SHADINESS!!

I DID IT!!

My first duplex is sold! Didn't break the bank on this one but the experience and knowledge I've learned is invaluable. Especially from here! Thanks for all the input and advice!