BiggerPockets


I'm making an offer, take a look

Forum Powered By:

49 posts by 17 users

To participate in forum discussions, create a free account or login.

Will M

San Luis Obispo, California

Dec 19 '12, 06:33 PM


I will be making an offer in two days on a property. I ran the comps, drove the comps, inspected the house and have a good feel for it's value. She has two other properties she also wants to sell me that I'm hoping get so I'm giving her my best price.

Comps (with .5 mi, 15sq', same bd/ba etc. ) show a range of $195-230k.

A near identical property with slightly better features (larger yard, driveway and a little prettier) sold a week ago for full price, $235k with multiple backup offers according to the agent.

The property is 12 yrs old and feels like a worn rental. Renovations will include a few doors, flooring, int paint, stucco repair, ext fencing fix, and the like. I didn't find any major structural issues and I plan to have a home inspection sniff out component defects which will be deducted if found.

I am anticipating a generic 'lipstick' remodel to the tune of $10-12k max.

I plan to list flat-fee MLS for $400 with 3% to buyers agent $6900 .

I'll have to evict tenants.

I'm factoring a 3 month holding time (although I suspect it will be less from what I've been seeing w/ properties at this price point).

I'll be financing it.

I'm paying closing costs (Title, escrow, etc) $2500?

All totaled I'm figuring no more than $25k in costs.

I should be able to sell it for $229k fairly quick.

I plan to offer $180k

Sound offer? Too skinny? What say you?


Edited Dec 19 2012, 18:39 by Will M


Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Dec 19 '12, 06:52 PM
1 vote


You'll be financing it how? Your own cash? Conventional? Hard money?

You're paying $180K plus $12K in fixup and have comps of $195K? You're not seriously considering this, are you?

If $235K is the high recent comp, it would be crazy to use that as a value these days. During the bubble, sure. Now you want the LOWEST recent comps, not the high ones. So, I'm not at all convinced your $229K is realistic. If you have a dozen GOOD comps at $225-235K and one or two lower, I might believe your $229K number. If you have half a dozen around $195K, and they're solid comps, $195K it is.

Even if you get $229K, $192K all in is 84%. There's not profit there. You need to be at 75% at the very highest, which means you need to be paying no more than about $148K. Even in CA!

An eviction in CA can take six months. If you're paying hard money at 15%, that's 1.25% per month while you make that happen.



Jon Holdman, Flying Phoenix LLC


Brandon Turner Verified

Real Estate Investor from Montesano, Washington

Dec 19 '12, 10:47 PM
1 vote


Yeah, I'm with @Jon Holdman - waaaay too skinny. Unless I'm missing something - you can probably do waaaay better than this. There are always a TON of extra costs that you never really can prepare for.

I like the 70% rule - Take the conservative, low end future value ($200,000) , take 70% of that = $140,000. Then subtract repairs (and double your estimates).

Total you should pay = $120,000.00. That would be a deal.

My opinion anyways! Thoughts? @Will M?



Medium_bp-squareBrandon Turner, BiggerPockets
E-Mail: [email protected]
Website: http://www.BiggerPockets.com
REInvestor & VP of Growth @ BiggerPockets.com | Follow me on Twitter! @BrandonAtBP


Steve Babiak

Real Estate Investor from Audubon, Pennsylvania

Dec 19 '12, 11:46 PM


Paying 180K will solve that seller's problem, but then you'll be the one with the problem of not making any money here. The numbers given by other posters above should open your eyes.



Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Sandy Blanton

Real Estate Broker from Pensacola, Florida

Dec 19 '12, 11:56 PM


I'm with these guys. How much is the cost of your capital? If you plug that in, it looks like you'll break even IF you sell at that high end of comp value AND your rehab costs are correctly estimated.

We always have a "minimum standard" of profit when we go into a flip. In this price range I wouldn't do it w/o a reasonable expectation to earn $40K after all expenses. If you're using hard money your capital costs will be huge. Based on what I see I wouldn't pay more than $120K for is as the other guy mentioned. Good luck, let us know how it goes.



Julie Grupke

Real Estate Agent from Canton, Michigan

Dec 20 '12, 12:17 AM


Agree with all - worst case monetary scenario = you'll be happy with any sale price in your comps range. Gotta make that money!! Don't do a deal just to do it, even if there's 2-3 more from that source. They may be bad->mediocre too. You could sell stuff on eBay for a better margin. :)

For comps, make sure they're in the same sub/immediate neighborhood. I've been doing TONS of comps lately and the half-mile rule can't be a blanket rule. I'll use a comp with different beds or baths & adjust if it's in the same sub vs. a higher priced comp in the sub next door.

For ex, I live in SUBURBIA heaven - my house would appraise $120-$130k, but directly behind me is a different sub where those specs would appraise $180-$190 (10yrs newer tho).



Aaron Mazzrillo

Wholesaler from Riverside, California

Dec 20 '12, 03:57 AM
6 votes


Did you forget to budget for profit? Or do you do this business pro bono?

There is one very golden rule you should learn in real estate:
It will take longer, cost more, and you will make less than you expect.

Make your offer based on that and you won't lose money.



Tom Devost

Real Estate Investor from Moncton, New Brunswick

Dec 20 '12, 04:16 AM


Even if you use 229K as the selling price (which you should not) using the 70% rule less your estimated rehab (12K) will give a purchase price of 148K. That's not even factoring in all of the other potential cost indicated by previous postings. Not a good deal!!



J Scott Verified Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Dec 20 '12, 06:08 AM
3 votes


Let me also point out that your rehab estimate is too low. How do I know? Trust me. $12K will get you a LOT less than you think it will, and if you do a $12K rehab, I can guarantee you won't get anywhere near the top of the market value.

I'd start by doubling that rehab estimate.



Medium_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Will M

San Luis Obispo, California

Dec 20 '12, 08:10 PM


Thanks for all the input!

BTW, I misstated one of the figures , the Comps are $195-265k and I place ARV at ~$230k. Again, $230k is substantiated by pulling the comps, driving the comps, a recent sale 5 doors down, as well as input from a broker I have a working relationship with (not a BPO though). Not to be arrogant but I'm comfortable with that valuation.

Even if you get $229K, $192K all in is 84%. There's not profit there. You need to be at 75% at the very highest, which means you need to be paying no more than about $148K. Even in CA!

Valid point and sound advice it is too slim, thanks.

As far as there being "no profit" I'm (was) still expecting to clear ~15-20k (gross) providing my assumptions are correct. What am I missing? Here's how I'm estimated my costs, rounded up to the nearest 500.

$1500 Inspections (termite +Home + appraisal)
$2500 Closing Costs (Title ins + Lenders policy + Escrow + Loan srv fee)
Note, closing costs are split on the buy and the sell so $2500 represents both halves.
$2000 Conventional financing ( Owner occupied w/ at least 20% dwn)
$12,000 Repairs *see below
$4000 Holding costs (assumes 6 month vacancy on a 4.5% OO 30yr fixed)
$7000 RE commissions (3%)
___________
$29,000 total buy/sell transaction costs.

Is there something big I missed or are you rather saying that even if my assumptions are correct $15-20k is not worth the risk? Either way thanks for the insightful advice.

Regarding repairs, this of course is the biggest variable. My estimate is based on the following:
New carpet/pad (900')
1 new interior door
1 new exterior door
1 screen door
Yard clean
Fence fix
2 stucco patch areas painted to match
Complete interior paint
Misc minor things like interior door knobs, outlet covers, bathroom fixts etc.

I plan to pay for a home inspection and if any defects are found that would affect resale I intend ask the seller for concessions on these. I expect at least one or two faucet, toilet or appliance issues. If it's over $250 I'm going back to the seller.

All the work except for the carpet and help with the yard clean will be done by myself and a friend of mine. He's a retired builder who's partnered with me on 3 other deals and charges me $20/hr cash more as a favor for opportunities I've sent his way in the past.

Question: I ball park $12k for the above repairs with price concessions from the seller for those discovered while under contract - reasonable estimate? J Scott?

Some additional info:

I anticipate 2-3 weeks to bring the property to sale condition once vacated.

I plan to make closing contingent on vacancy and allotting 60 days to close for this in the contract. If there are problem tenants I'd either extend closing or walk away. They are on a month to month lease. I know CA evictions can be a nightmare. Believe me I know.

I plan to list the property while under contract. The contract I use (via Michael Quarles) includes that provision. (BTW where'd he go?)

One last question:

I am curious why use a flat percentage (75%) vs a flat dollar amount? Most houses in my area start in the low-mid 300's. Given that it sounds like you would walk away from a CA deal if you couldn't book at least $80k but elsewhere - say the Midwest - you'd settle for less than $80k on a deal. seems like a lot of money to leave on the table, just curious as to why?



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Dec 20 '12, 08:43 PM


$4000 Holding costs (assumes 6 month vacancy on a 4.5% OO 30yr fixed)

Are you planning to actually move in? That always makes rehab a challenge.

Even if you do, this might work. Once. When a lender makes an OO loan, they don't expect it to be paid off in six months. Don't expect to get a second loan from the same broker or lender.

How are you getting away with 3% commissions? Are you an agent?



Jon Holdman, Flying Phoenix LLC


Joe Delia

Residential Real Estate Agent from Rochester Hills, Michigan

Dec 21 '12, 04:59 AM


Where are your costs to evict the tenant?

Check out "occupants from hell" for a little glimpse at the games that can be played in CA. This deal is terrible. RUN as far and as fast as you can away from it.



Will M

San Luis Obispo, California

Dec 21 '12, 07:53 AM


[/i]How are you getting away with 3% commissions? Are you an agent?[/i]

I've used flat fee MLS offering 3% to the buyers agent. Has worked good for me so far.

I do not intend to move in. Regarding a OO loan, I've done it once before and sold in just under 90 days. I've spoke with others who have as well. My impression is that the lender isn't as concerned about it as some may think. I 've used the same lender for 3 NOO loans and 2 OO , one of the with a short turn around. While I don't plan to do this every time i recently sold my primary residence so i plan to take advantage of that. If he balks i can go elsewhere. Honestly I'm not too worried about that.

Check out "occupants from hell" for a little glimpse at the games that can be played in CA. This deal is terrible. RUN as far and as fast as you can away from it.

Run Forest RUN!!! Really. Just up and run? My theory is that any deal is doable...at the right price. And the right price is what this topic is about. Not to be cavalier about it but this is just a 12 yr old worn rental that needs freshening up. I bought a house at a sheriffs auction a few years ago that was a real heap. Now that one I could understand, But run from this one though??? Think I'll just reduce the offer .

Tenants issue was covered previously.



Glenn Espinosa

Rehabber from

Dec 21 '12, 08:09 AM
2 votes


I practice talking myself out of a deal as opposed to talking myself into one.

If I find that I can't talk myself out of one then I know I have a good deal. On the other hand, if I notice that I am talking myself into a deal and relying too much on everything to go right in order for a deal to work... that's when I run.



Scott W.

Illinois

Dec 21 '12, 08:18 AM
2 votes


"I do not intend to move in. Regarding a OO loan, I've done it once before and sold in just under 90 days. I've spoke with others who have as well. My impression is that the lender isn't as concerned about it as some may think. I 've used the same lender for 3 NOO loans and 2 OO , one of the with a short turn around. While I don't plan to do this every time i recently sold my primary residence so i plan to take advantage of that. If he balks i can go elsewhere. Honestly I'm not too worried about that."

Will, man, you're playing with fire. The lender may not care but the feds do. You & your buddies will get fined for this if caught. Please stop doing this & follow the rules.



Steve Babiak

Real Estate Investor from Audubon, Pennsylvania

Dec 21 '12, 11:27 AM


Originally posted by Will M:
...
As far as there being "no profit" I'm (was) still expecting to clear ~15-20k (gross) providing my assumptions are correct. What am I missing? Here's how I'm estimated my costs, rounded up to the nearest 500.

$1500 Inspections (termite +Home + appraisal)
$2500 Closing Costs (Title ins + Lenders policy + Escrow + Loan srv fee)
Note, closing costs are split on the buy and the sell so $2500 represents both halves.
$2000 Conventional financing ( Owner occupied w/ at least 20% dwn)
$12,000 Repairs *see below
$4000 Holding costs (assumes 6 month vacancy on a 4.5% OO 30yr fixed)
$7000 RE commissions (3%)
___________
$29,000 total buy/sell transaction costs.

Is there something big I missed ...? ...

Insurance - you will have to keep the property insured since you will be getting a loan (4.5% OO 30yr fixed).

Originally posted by Will M:
....
Some additional info:

I anticipate 2-3 weeks to bring the property to sale condition once vacated.
...

Most 4.5% OO 30yr fixed loans will have some kind of provision requiring you to occupy that house for a minimum period (typically 12 months is what I've seen). Doesn't sound like you intend to do that ...



Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Steve Babiak

Real Estate Investor from Audubon, Pennsylvania

Dec 21 '12, 11:31 AM


Originally posted by @Glenn Espinosa:
I practice talking myself out of a deal as opposed to talking myself into one.

If I find that I can't talk myself out of one then I know I have a good deal. On the other hand, if I notice that I am talking myself into a deal and relying too much on everything to go right in order for a deal to work... that's when I run.

Glenn Espinosa - the OP has ALREADY talked himself into this deal; it sounds like he is trying the talk US into this deal too!



Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


J Scott Verified Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Dec 21 '12, 11:53 AM
1 vote


Originally posted by Will M:

I do not intend to move in. Regarding a OO loan, I've done it once before and sold in just under 90 days. I've spoke with others who have as well. My impression is that the lender isn't as concerned about it as some may think. I 've used the same lender for 3 NOO loans and 2 OO , one of the with a short turn around. While I don't plan to do this every time i recently sold my primary residence so i plan to take advantage of that. If he balks i can go elsewhere. Honestly I'm not too worried about that.

I'm pretty sure you just publicly admitted to mortgage fraud...



Medium_lishproplogoJ Scott, Lish Properties, LLC
E-Mail: [email protected]
Website: http://www.123flip.com
CHECK OUT MY BIGGERPOCKETS BOOKS: http://www.biggerpockets.com/flippingbook


Will Barnard Verified Moderator Donor

Real Estate Investor from Santa Clarita, California

Dec 21 '12, 02:08 PM


Originally posted by J Scott:

I'm pretty sure you just publicly admitted to mortgage fraud..
I am sure he just did.

Secondly, why use the 75% figure rather than a flat profit? Because it works for most investments though it too needs to be adjusted as price points go up or down in range. Example, if you use just a flat profit of 20k, and it takes $200k investment, then you made 10% profit. Not bad, but not good. If you use that same $20k and have to invest $400k, then your return is a measly 5% and no room for error. This is why pros use %'s.

I would disagree with Jon on not using top market numbers for CA but only because of my experience and knowledge of the CA market. Prices are going up, and a fully rehabbed home will command top dollar with likely multiple buyers in the price range you are looking at. Again, I am only speaking of my market, not Nationwide.

Lastly, I agree with everyone here regarding the FACT that this deal is way too tight even with your $230k exit value. Offer lower or move on.
I also agree with J Scott in that your rehab figure will likely need to be higher and include some kitchen and bathroom upgrades to obtain full market price. With renters in there now, I would imagine the fixtures and cabinetry is in need of upgrades.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com - For all Southern California House Flippers, Agents, and Wholesalers


Joe Delia

Residential Real Estate Agent from Rochester Hills, Michigan

Dec 21 '12, 03:42 PM
1 vote


Originally posted by Will M:
[/i]How are you getting away with 3% commissions? Are you an agent?[/i]

I've used flat fee MLS offering 3% to the buyers agent. Has worked good for me so far.

[b]I do not intend to move in. Regarding a OO loan, I've done it once before and sold in just under 90 days. I've spoke with others who have as well. My impression is that the lender isn't as concerned about it as some may think. I 've used the same lender for 3 NOO loans and 2 OO , one of the with a short turn around. While I don't plan to do this every time i recently sold my primary residence so i plan to take advantage of that. If he balks i can go elsewhere. Honestly I'm not too worried about that.

Check out "occupants from hell" for a little glimpse at the games that can be played in CA. This deal is terrible. RUN as far and as fast as you can away from it.

Run Forest RUN!!! Really. Just up and run? My theory is that any deal is doable...at the right price. And the right price is what this topic is about. Not to be cavalier about it but this is just a 12 yr old worn rental that needs freshening up. I bought a house at a sheriffs auction a few years ago that was a real heap. Now that one I could understand, But run from this one though??? Think I'll just reduce the offer .

Tenants issue was covered previously.

I see. This is referred to as a "Thief" or "Criminal". Look those terms up after the "Occupants from hell" thread I suggested to you.



To post a reply or start a new discussion, create a free account or login.

Manage Keyword Alerts

View All Forums


"