Deal or No Deal??
Real Estate Investor · Sicklerville , NJ · Member since 2008 · 20 posts · 0 votes
A friend and I, have finally began to invest in Real Estate and where we
live, is a I guess you could say a neighborhood(complex) where there are
nice sized single family homes. Most of the houses go for about
300,000+. Around about 2 or 3 years ago i spotted a house around the
street that looks, like no one has been living there, and recently we drove
around and its still the same, but now with a sign. We called the number
come to find out it is Bank Owned. The asking price is $239,900 and the
new additions since the people living there been out was said to us that
the deck has been done over, and new fencing in the backyard. This
week we scheduled a walk thru to see the inside. Being as though the
homes around here are around about 300,000+ and they are asking 239
before we actually get the walk-around and see the inside if anythings
wroung does this seem like a good deal, or should we keep looking?
Any advice is helpful, thanks.
DEAL DEAL DEAL DEAL! TAKE THE MONEY!!!!
oh wait a minute, i was having flashbacks to my favorite show on TV (the only show i actually watch). howie mandell is the man!
anyway.
i'd say that you'd need to give some more information. i know you said the houses in the area are "around 300k"...
how do you know this? what's your local market like? is it selling?
i mean, of course, if you can pick up a house for over 60,000 below market or in this case 20% below market and fix it up to make like 10 or 15k, that's good.
there's just so many variables. forget about the actual house, do you know how you're going to finance it? (i'm sure you do - i just like to ask alot of questions :D ) why is the owner selling NOW. do you have access to speaking with the owner? if not, do any of the neighbors know how to reach him/her?
information is your GREATEST TOOL. numbers are easy (once you truly understand them). in my experience, it's the information-gathering that is a big challenge.
also consider - how long the house has been vacant?
let's say you take a look at it and i'll assume that you actually know the costs of general repairs etc. let's estimate them to be 12,000.
(do you need permits for any of the work - call the town to ask GENERAL INFORMATION about permits and such).
k, so 12k in repairs and let's say 12k in closing costs = 24,000
now let's just saaaayy, you'll have a mortgage payment, and i'll just throw a number out there to save time and typing = 2500 month (includes PITI)
and you plan WORST CASE SCENARIO OF HOLDING TIME - 6 MONTHS
= 15,000
you sell it with a realtor = 3% comm at 300k = 9,000
add it up = 48000 total cost of project soup to nuts
so, you buy for 239k + 48,000 = 287,000
sell for 300k...profit = 13k
basic but you get the point - try this: you probably shouldn't pay more than 180,000 for it.
point? - information is paramount, take a look at it, take into consideration your talents and abilities and CASH and of course the property and the seller, neighborhood and market - all these things will then and only then let you know if it's a Deal or No Deal.
Good Luck man! Let us know how it goes....
I would recommend first determining the actual After Repaired Value (ARV) of the house. Around 300K just won't cut it. The difference between 315K and 290K is a lot of lost sleep. Get some comparable sales (comps) from a realtor for the area. You need to find a comparable size house (bedrooms, baths, and square footage) with similar attributes and in the same area to be able to accurately determine its true value.
Then you would need to determine an accurate estimate of repairs/updates needed to sell the property for that area. If you are not comfortable estimating those yourself, then I would recommend getting atleast two contractors to bid the repairs. Remember to factor in some unforseen issues with repairs (maybe 10% over)
When you have determined the ARV and the estimated repairs, I would recommend that a "good deal" for a rehab project (fix up and resell) in an average market is 70% of ARV minus repairs. If you are in a strong/appreciating market, you might bump that up 5%. If you are in a soft market, you would want to drop that percentage atleast 5%. That percentage will factor in closing costs for buying and selling, financing costs, holding costs, selling costs (realtor fees/advertizing), and your profit.
THanks aLot, for your help, i actually thought it all out. We went in and
there were alot of things wrong in the inside and, we are looking away
foreclosed homes that have been for a while. More onto wholesaling is
what we are looking for, told the guy my offer and he wanted too much
the house in the shape that it was in, and for my first house that didnt
seem the right route to go. Thanks for the help i needed it, motivated
we are already focused on two newer properties, in a different
neighborhood. Once again thanks alot, look forward to hearing some
money making stories.
I live an an area where homes are moveing slow, very slow. The average person can not afford a 300,000 home, if you investment is this retail price, your limited on who is going to be able to purchase the property, unless there are people with the income and jobs to support this market.
I'm seeing anything that is worth 300-3 million sitting for a long time, the higher the price/value the smaller percentage of the population can afford it.
On top of this good news all these properties are depreciateing
An accurate ARV must take into account the strength of your market and the average sell time in your market. In a slower market, if you are searching for a 90-180 days on market sell time, then your ARV will need be 10% or 20% lower than all the other houses that are sitting for 180-360 days. If the other houses in the area are selling at $200/square foot but only 10% sell within a 6 month period of time, then I would argue that the true market value of those houses is not $200/ft. The market (supply and demand) is in the process of correcting itself, and the true market value may be somewhere around $170 or even $150/square foot. So if you are calculating an ARV on a house in that area with the $200/ft factor, then you are not accurately factoring your ARV. You need to be using the $170 or $150 factor to be able to sell the house in a reasonable amount of time.