Draw the offer or Walk away
After initially rejecting my offer, a realtor got back to me today, asking if I could increase my bid by $1,000 to purchase a property. The owner of the property had started construction on a new project but stopped midway due to financial constraints. Furthermore, the owner had no permits, and it was unclear if any damages had been done during the construction process. While the owner was asking for $36,000, the house's actual worth was only $18,000, which I determined through the use of an Excel sheet and the tools provided by BiggerPockets. However, even though the numbers were not in my favor, I still find it challenging to determine when a deal is too good to be true or when it's time to walk away. Any advice?
#3 Managing Your Property Contributor
How much will the renos cost and what is the after reno value?
Quote from @Theresa Harris:These are the numbers. I am not an expert. However i did use a worksheet and this is what it told me. Which made me walk away from the offer. The top excel sheet is a sheet I used to try to calculate it myself because I am eager to learn how to do the numbers without the sheet and then I verified the numbers using the worksheet. I am open to your idea or any input.
How much will the renos cost and what is the after reno value?
#3 Managing Your Property Contributor
Rather than rely on a spreadsheet, work with a realtor who deals with investors. They should know the numbers as well. There is more to it than the age and size of the home. Location is key.
Quote from @Theresa Harris:Okay. I will definitely going forward. That’s a promise. .. Also the area is a flood area and houses aren’t doing well in that area. The agent who is representing the house also stated even though it’s in a bad area it definitely has “Potential” …
Rather than rely on a spreadsheet, work with a realtor who deals with investors. They should know the numbers as well. There is more to it than the age and size of the home. Location is key.
There are likely many other ways to structure a deal or change your exit strategy that could turn this in your favor. What is your plan for the property? I agree with above, definitely connect with an investor-friendly agent who can guide you. They will probably also have clients who will purchase the property from you.
As a licensed contractor. If a house has stopped construction in any condition you will need to contact the city. Financial constraints are usually the last reason we get stopped and any reason above that is often more costly than the budget. For your case you knew the project had no permits which means the city will need you to either get a judgement from an engineer that it has been built to code or to remove all unpermitted additions. Walk away