Greeting investors. I've been communicating with an owner and their broker for a very distressed 4plex property in Portland Oregon for a few months. The brokers are not going to re-list the property and the owners motivation is growing with looming deadlines to resolve the code violations.
A brief history and property details:
1 - 2bd/1bath 800sqft
2 - 1/1 700 sqft
1 - 1/1 650 sqft
ARV is between 875/900k.
The property was put under contract once for 500, and after reviewing their projected rehab costs of 250-300k during their diligence period, (broker admitted this was a bit high) they changed their offer to 400 and it was turned down.
I have a strong feeling after discussion with the broker that the owners would agree to sell near 425 with an agreement to cover the cost of their code violations between 10-15k. At that point market the contract @450k.
What are your thoughts, do you see any road blocks besides not actually having anything in writing?
What are the rents going to be?
It all comes down to the numbers. Your money is made at the very beginning when the deal closes. What is your exit strategy? Fix and flip or buy and hold? One strategy may work for this building while the other may not. Place an offer and do your own due diligence. Maybe the last buyer was correct on rehab. A sellers agent will represent the seller and may have no problem telling you that they feel the last buyer overbid the rehab just so they can get you motivated to make an offer. I would get your contractor and go get eyes on the project yourself. $250-$300k on a 3500sqft home is a hell of a rehab. You could nearly stand a new home for this price lol. One big concern I see is that the home has been for sale for a few months. Right now in the PNW there isn't a good deal that remains on market for this long. I just purchased a small home in Olympia, WA at a great price that had 8 offers in 4 hours. I had another rehab that I offered on and it was bid up over $50k on the sellers asking price within a handful of hours. Not to say it's not a great deal. There is a lot of missing numbers/info on your potential purchase to really form a strong opinion. I feel that if it truly has an ARV of $900k and you can purchase for $450k with a $250k rehab that leaves you in a really awesome spot to either flip or buy and hold if rents are there to support $700k of debt. Those basic numbers sounds awesome. I would just confirm and reconfirm those numbers becuase I have a heard time believing that a deal this good in the Portland area would remain on market for this long. I hope i don't come off as negative. Good luck
Thanks for the feedback, I don't take it negatively, I'm seeking criticism and another perspective, so I'm willing to hear some truths. The rents on those units all depend on the quality of the rehab, and I only intend to wholesale the building. I could expect them to range between 12 and 1600 a month.
The building is quite distressed, and the owners are expecting too much from the property. That's the only reason I can understand why it still hasn't sold.
I'll echo Justin's comments that it sounds like you need a little more due diligence there to see as much of the real story as you can. At the same time, don't ignore the fact that market has shifted and sellers who were asking too much are still sitting there...if the numbers add up, you may just have been persistent and caught the sellers at a point where getting out from under the pain of the property is worth more to them than the price. In which case, it could be great for you. Just be careful and know what you're getting in to and more importantly, how are you getting out!
Also, Portland is a big city...the location of that four-plex will be the driving factor of price. A four-plex off hawthorne, close-in is going to be worth a lot more in the end than the same building off of Powell and 122nd. Be cautious over-estimating ARV based on comps from a different neighborhood.
Matthew and Justin have accurate thoughts and I agree. So it just comes down to refining the details (especially the numbers) and then, as a wholesaler you've got a lot of legwork it both directions (finding properties/finding investors) When you are in this situation and you're assessing a property, certain investors in your network should be crossing your mind as the property begins to fall into certain criteria. If you have a trusting/mutual relationship with your investors (which is a primary key in risk related transactions) then you could have them be part of the assessment (ultimately they're going to asses anyway) if the investor cuts you out because you don't have it under contract then that is not a mutual relationship. As an investor myself I'd like to look at the property and run the numbers with you and be transparent with how much id pay you for finding the deal. But you have to realize what the strong sellers market means for finding a "deal"