I'm hoping for somebody more experienced than me to help me out with a deal. I found a duplex in my area listed for 139k recently. The agent happens to be a good friend and we put in an offer at 130K. This was the exact amount the seller has remaining on their loan. I ran the numbers on it and the ROI was in the 15% range... pretty good in my book.
I also know there was another buyer willing to pay full price for the property and was going to live in one unit himself. However he didn't have the 20% down that the bank was requiring.
We went through the inspection... needed some work but nothing crazy... but the house didn't appraise... they couldn't find any duplex comps in the area so they went 10 miles out to find a comp. The appraisal came back at 85K.
I've asked the questions to see if the seller's loan is assumable and what the interest rate is etc...
Now I'm wondering if this is a "subject to" opportunity... to bring the other potential buyer back in.
Any advice would be much appreciated!
Dont waste your time trying to assume the loan as that wont happen. Why would you consider doing that when the value came in $45k lower?
Curt, thanks for the reply. I guess the reason I'm still interested in turning the deal into something is b/c my calculations show that as a rental property it would be quite profitable. Even at my current offer price.
The appraiser couldn't find a comp in the area for a duplex. They had to go 10 miles out to a much poorer area. So I don't trust the bank's comp.
Feel free to correct my line of thinking... if I need to just move on, i'd appreciate the honesty....
@HEMANTH GRANDHIGE I think your gut is probably right. Sorry I missed your post, but there will be many more deals so it's best to learn the lesson now.
The appraisers do their best, but they don't always know an area well. They have criteria like, within a mile, don't cross a major road, similar age/size, etc. When they have to break the rules, like they did in this case it's often a disaster.
Dispute the appraisal. You will have to teach them the difference between a mile in one direction vs. another. Using rent vs. comps, etc. You'll win some and lose some. I've won 4 of 5. It takes work, but if you know the value of the property then it's worth the effort.
In this case, Hard Money with a refi down the road might have worked out but it would have been a gamble.
It also helps if you can document, for the bank/appraiser, how you came up with *your* valuation. Assuming, of course, that you did some type of due diligence to come up with your offer. ;)
In this case a bad appraisal may work in your favor. Is it a distressed situation? Perhaps a short sale could be worked out with the sellers lender.
If you're thinking about a subject to deal, what are the terms of financing right now? Are you saying you can get a 15% ROI cash on cash, or with the financing in place and what you have to put down? If the financing is fine and you don't have to put anything in to get the property, and in addition you are cash flowing every month, who cares what the price of the property is?
@Rick Baggenstoss Thanks for the reply. We thought about contesting but in the end we let the deal go. The problem was there really aren't other duplexs in the area. We knew rents in the area and the place was occupied so perhaps we could have done a valuation based on income. I just wasn't sure of the information I could provide and the relevance.
The seller didn't have any incentive to lower the price as they were not in a distressed situation. They had many properties and wanted to downsize their portfolio. They sold something else instead.
Thanks everybody for the help.
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