PLEASE HELP ME CLOSE MY FIRST DEAL!

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PLEASE HELP ME CLOSE MY FIRST DEAL!

Camillia W.
Philadelphia, PA · Member since 2016 · 35 posts · 4 votes

Hi there BP community!

 I have a pressing issue that I could really use you guys' as insight on. I have a childhood friend whose mother has a house that she is willing to sell me I'm not sure  which direction  I should approach the situation.  I want to make sure that I present the deal as best as possible:

1200 square foot  

3 bed 1 bath  

located  in up-and-coming West Philadelphia  near the train .  

Built in 1925  

Property Value is around 70Kim

Comps have sold from 120,000K-- 1.5 Mills.

I also work with a Contracting Company and I'm wondering should I get it under contract and put together an exit strategy myself to secure hard money or JV the opportunity. Please help point me in the right direction!

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y

Comps have sold from 120,000K-- 1.5 Mills.

This is so far off. Accurate comps wont have 1.3 million dollars in price difference. 

You need to pull very similar houses, within a mile, similar condition, size, bedrooms, same neighborhood that have sold within 6 months preferably. A realtor should be able to help you pull these. 

Then you need to figure out how much work it will take to get the house to the same condition as those comps. 

Then make an offer based on that. 

So if accurate comps end up being $200k for the house fixed up

but it needs $50k of work

And she wont take any thing under $140k for it

There's no deal there. You need to back into what you can offer for the property to have it be a deal. 

You can also run cash flow analysis to consider if it would be a good option as a rental as well. 

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    Comps have sold from 120,000K-- 1.5 Mills.

    This is so far off. Accurate comps wont have 1.3 million dollars in price difference. 

    You need to pull very similar houses, within a mile, similar condition, size, bedrooms, same neighborhood that have sold within 6 months preferably. A realtor should be able to help you pull these. 

    Then you need to figure out how much work it will take to get the house to the same condition as those comps. 

    Then make an offer based on that. 

    So if accurate comps end up being $200k for the house fixed up

    but it needs $50k of work

    And she wont take any thing under $140k for it

    There's no deal there. You need to back into what you can offer for the property to have it be a deal. 

    You can also run cash flow analysis to consider if it would be a good option as a rental as well. 

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    8Reply
  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    9y

    What do you do with the contracting company? I don't know the area, but first determine if it's a deal or not. If you can close on it yourself using hard money that would be more beneficial if the contracting company can handle the repairs. If not, and you don't have any experience go the JV route, but you will have to give up equity.

    0Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    What's the address? I can try to find three comps to at least get the conversation started.

    3Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y

    HI Natalie,

    Thank you for this info.  There is actually a recently sold 3 bd 1 bath in the same zip code that had sold for 1.5 mil.. not sure how but that's what the data says.   The repairs are at 40k.  I would like a rental option but I do not have the cash to pull it off.  I was thinking of maybe hard money lenders with an end split to have more of my "skin" in deal.  What are your thoughts on this?

    0Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y
    Originally posted by @Nick C.:

    What do you do with the contracting company? I don't know the area, but first determine if it's a deal or not. If you can close on it yourself using hard money that would be more beneficial if the contracting company can handle the repairs. If not, and you don't have any experience go the JV route, but you will have to give up equity.

     I do sales and PM with the Contracting Company.  I work closely with the GC and know that he can handle the rehab of this job.  I do not have much upfront money but I know that this would be  great deal for lenders!

    0Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y
    Originally posted by @Christopher Phillips:

    What's the address? I can try to find three comps to at least get the conversation started.

     3 bd 1bath in 19139....61st and Arch

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y
    Originally posted by @Camillia W.:

    HI Natalie,

    Thank you for this info.  There is actually a recently sold 3 bd 1 bath in the same zip code that had sold for 1.5 mil.. not sure how but that's what the data says.   The repairs are at 40k.  I would like a rental option but I do not have the cash to pull it off.  I was thinking of maybe hard money lenders with an end split to have more of my "skin" in deal.  What are your thoughts on this?

     Sounds like an outlier. 

    My guess is it was actually part of a lumped in deal with several properties, or land ect. 

    I wouldn't consider this a comp because there's no reason a normal 3/2 next to one that sold for 120k would sell for 1.3 mil

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    1Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y

    That makes more sense.   Is it realistic to pursue Hard Money and change exit strategies at the end to switch to a more conventional loan? Or is this something not likely for a newbie with not so great credit? What would you do in my case?  I am sure I can get the house for under 50k with about 35k for repairs 

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    I think it's a reasonable strategy- I'd work with an experienced investor if you can though. You need to have numbers totally pinned down. I'd pay for a contractor to give me an estimate on repairs, have an experienced agent get super accurate comps. 

    You want to make sure you're spot on before you jump in. 

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    2Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    okay.

    Without any adjustments for condition, here are a few comps in the general vicinity.

    Target: 0.25 mile radius near 61st St and Arch Philadelphia, PA 19139 3 bed 1 bath

    234 N 60th St Sold 7/21/2016 $28,500 3 bed 1 bath 1,218 sq ft

    53 N 61st St Sold 8/15/2016 $39,000 4 bed 1 bath 1,522 sq ft

    112 N 61st St Sold 7/16/2016 $74,000 3 bed 1 bath 1,118 sq ft

    31 S 62nd St Sod 11/15/2016 $50,000 3 bed 1 bath 1,200 sq ft

    3Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y
    Originally posted by @Christopher Phillips:

    okay.

    Without any adjustments for condition, here are a few comps in the general vicinity.

    Target: 0.25 mile radius near 61st St and Arch Philadelphia, PA 19139 3 bed 1 bath

    234 N 60th St Sold 7/21/2016 $28,500 3 bed 1 bath 1,218 sq ft

    53 N 61st St Sold 8/15/2016 $39,000 4 bed 1 bath 1,522 sq ft

    112 N 61st St Sold 7/16/2016 $74,000 3 bed 1 bath 1,118 sq ft

    31 S 62nd St Sod 11/15/2016 $50,000 3 bed 1 bath 1,200 sq ft

    Thank you for this...so these are comps for more or so "as is" properties no? Wont the ARV be from newly renovated similiar properties?

    1Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    ....Comps should be what she can sell the property for once she fixes it up. 

    It's current value doesn't really matter to her as that's the part you back into. 

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    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y
    Originally posted by @Camillia W.:
    Originally posted by @Christopher Phillips:

    okay.

    Without any adjustments for condition, here are a few comps in the general vicinity.

    Target: 0.25 mile radius near 61st St and Arch Philadelphia, PA 19139 3 bed 1 bath

    234 N 60th St Sold 7/21/2016 $28,500 3 bed 1 bath 1,218 sq ft

    53 N 61st St Sold 8/15/2016 $39,000 4 bed 1 bath 1,522 sq ft

    112 N 61st St Sold 7/16/2016 $74,000 3 bed 1 bath 1,118 sq ft

    31 S 62nd St Sod 11/15/2016 $50,000 3 bed 1 bath 1,200 sq ft

    Thank you for this...so these are comps for more or so "as is" properties no? Wont the ARV be from newly renovated similiar properties?

     Yes- you will want comps for similar renovated properties to how yours will be after you put work into it. :) 

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    0Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y

    This is all great thanks!

    1Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    @Natalie Kolodij like I said, those are current sold homes without adjusting for condition.

    Most of the homes appear to be in poor condition. 

    112 N 61st St has been updated.

    31 S 62nd St is in rough shape.

    Homes currently on the market renovated:

    16 N 62nd St, Philadelphia, PA 19139 for sale at $74,000 3 bed 1 bath

    24 N Edgewood St, Philadelphia, PA 19139 for sale at $79,900 3 bed 1 bath

    0Reply
  • Ryan Cameron
    Investor · Philadelphia, PA · Member since 2014 · 351 posts · 80 votes
    9y

    @Camillia W.

    I agree with @Natalie Kolodij. You need to get the numbers pinned down. I am familiar with the 19139 zip (I have a rental there). 

    0Reply
  • Franklin Romine
    Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
    9y

    @Camillia W.

    Keep pealing the onion with the seller.  See what else they might need.  Price isn't everything.  They might need help moving or staying in the property for a period after close of escrow.  


    Franklin

    0Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    At the end of the day, 3 bedroom 1 bath homes renovated are going for $75,000 in that general vicinity. Because of the types of homes there, you really have to keep the comps within a small area. You can't use the entire zip code.

    If the place needs $40,000 in work, as many of them do, you really have to start running the numbers with the assumption that you need to purchase the house well below $35,000 less closing costs to buy and sell, carrying costs, and % of profit you want to earn.

    If you are looking to rent it out when you're done, then you have to look at a different scenario. 

    2Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y
    Originally posted by @Ryan Cameron:

    @Camillia W.

    I agree with @Natalie Kolodij. You need to get the numbers pinned down. I am familiar with the 19139 zip (I have a rental there). 

     So Ryan,

    from your experience in that area: would you say that pumping about 35-40k into a property that is half decent near the El, My ARV should be above 80k correct? somewhere closer to 100-120k?

    0Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y
    Originally posted by @Franklin Romine:

    @Camillia W.

    Keep pealing the onion with the seller.  See what else they might need.  Price isn't everything.  They might need help moving or staying in the property for a period after close of escrow.  


    Franklin

     No one currently lives there.  Mom is getting old and sons are not responsible enough to handle property.  She purchased the property for 36k back in 89'

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    "At the end of the day, 3 bedroom 1 bath homes renovated are going for $75,000 in that general vicinity. Because of the types of homes there, you really have to keep the comps within a small area. You can't use the entire zip c"

    You're looking at $75k for your ARV

    If the house needs 40k

    You need to buy it for under 20k to make this a deal

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    2Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y

    Wow! I really thought it was worth more...it's weird because she purchased for 36k back in 1989. Now to accept 16 less than what she paid 29 years later, is that a normal scenario in REI?

    0Reply
  • Christopher Phillips
    Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
    9y

    Purely depends on the area. One of the things that helps is to look at the sales history of some of the homes in the area.

    Most of the sales charts in that vicinity going back 10 years are pretty flat.

    213 N 62nd St, Philadelphia, PA 19139 as an example

    3 bed 1 bath.

    Sold 2007 $29,900

    Listed for sale in 2013, after multiple price reductions finally sold for 2014 for $28,100.

    When looking at investment scenarios, at some point, you have to gauge the appreciation of home values in an area.

    Some areas just have been rather flat over the years, especially if the homeowners haven't updated their properties and most people are renting.

    0Reply
  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    9y

    Remember you have costs to get in an out of the deal.

    Realtor fees, home repairs, insurance, taxes, utilities etc while you hold the property.

    Also there is risk, as a property manager, I am sure you know this but almost every repair has some sort of unexpected risk that usually costs more money the minute you open up the walls.

    1Reply
  • Camillia W.
    OP
    Philadelphia, PA · Member since 2016 · 35 posts · 4 votes
    9y

    @Bart hedgcock Thanks you....How do I help the seller to appreciate her loss of profit in what she spent initially? I am sure the depreciation is what I would have to inform her about. What do you think?

    0Reply
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