Deal or No Deal

21 Replies

Hello BP,

I have a questions on a deal that I am looking into at the moment and I would like to get as much feedback as possible. 

The property is an ugly home located downtown the asking price was 20K but due to family issues with the seller they are letting it go for 17K. The repair is going to be about 6K and ARV is 36K. The contracting work will be done by the sellers since they are contractors. They stated they had originally gotten the property to turn it into a rental but as I mentioned due to the family issues they now need to sell it. I looked at the property at the moment it is a 1 bed 1 bath and they where going to make it 2/1.

Sgft: 600

Bed: 1 (after renovation will be 2)

Bath: 1

Year Built: 1950

Misc: I need minor feedback, I am not sure what it can be but on the side of the property on the bottom there is black stuff around the home. Could this mean possible flood zone?

My questions are would this be a great deal? The factors I am considering are how long will it be before I sell the property? It has no garage (cars have to be parked in the sidewalk). It is a small home so I am not sure weather a family would be interested also since it is semi a busy street. ( Am i thinking right? or am I just over thinking things?) One good thing is that is about 500 ft from a police station. If that even matters.

My strategy would be flip the property, wholesale, or rental. I was thinking to do seller finance but since I will be using the money from a private lender, I want to be able to pay him asap.

Thank you all in advance for any assistance.

I'd be very worried about using the sellers as your contractors.  Are you sure they're repair estimates are solid?  Do they do good work?  Have you worked with them before?  

The next question you have to ask yourself is what is your PLAN B.  If Plan A is to flip it and make a few grand profit, what happens if you can't?  What's the rental market like in that area, what will it rent for, and will you be OK dealing with the typical demographic in that neighborhood?

Best,
 - C

Al,

It sounds to be a promising rental property. In my experience homes in this price range don't sell to owner occupied buyers too quickly so I don't know if I'd go into it looking to flip it.

How sure are you that the ARV is truly 36k? Are you getting that info from the sellers?

They have the ability and time to fix it up as they have offered to do it for you for 6k. So why sell it for so much lower then 36k?

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633

Thank you much for your response

@Chuck B.   

If you don't mind me asking how would using the sellers as contractors worry you?

Q1: At the moment I am taking there word for it. They informed me that they would be giving me an estimate sheet on how much everything would cost once deal is ago.

Q2: As for there work I am not sure. I have not gotten far enough to look into properties they have done. The reason I know about the contractors/deal is because they came to the local REI Club Meeting.

Q3: I have not worked with them, just talked to them at the meeting and by phone about the property.

Q4: As for rental they had mentioned rent in the area would be going $400. There strategy was to rent the property $400 per room. I did check on rent-o-meter and $400 seems to be about right. I haven't yet made calls to see how much others are asking. 

Q5: That was my other concern in seeing what type of tenants I will be having. Since I am not sure it it would be a family. 

@James Wise  

That did cross my mind and also I as told that banks would not loan lower than 50K. So id it was flip the buyer would have to pay all cash. As you mentioned usually in that price range dont sell as fast. 

The ARV they informed me of and I did do some searching and it came at about that price.

They informed me that one of there family members was sick and they needed the money. So they had to put there plans aside, that's why they want to sell the property. At the meeting they where asking 20K but when I talked to him yesterday he said he would be willing to let it go to 17K.

@Al 

@Al C.  I would be wary. If they are the contractor buyers, they probably bought it for $5k and then burned $10k and now see tha the real rehab is another 10-15 and don't have the money and are looking for someone to bail them out. I would be looking for other cheap deals that are closer to livable. 

As a contractor 6000 dollars i can spend at lowes in 2 hours -- would have to be some very minor repairs. More than likely the repair bill would be double or triple that figure -- without seeing the property myself. But then again i usually overbid a property worst case scenario.

I never take anyone at their word unless they are a close personal friend whose word has been proven over time.

Gabe

@James Wise   The property rents out at $400 a month. When I was talking to them they had mentioned they wanted to rent the 2 rooms for $400 each. Which got me a bit confused since the property itself would be about $400 a month. 

Thank you @Arlan Potter   and @Gabriel Mabry for your response.

@Arlan Potter When you say burned 10K do you mean like what they put in the property? and they now see things and they need to put another 10-15K?

@Gabriel Mabry The inside of the property is pretty bad. It will need a new floor, and walls The outside did not look to bad unless I am wrong. Ill be posing some pictures in a bit on the property.

Just by looking at the sqft,bdrs & baths, I can tell you that it will be very hard to find a investor buyer. If there was a buyer for this property they would probably be a new investor.

I don't even think the renovation costs would be worth it. Unless this home is in a very desirable neighborhood I don't see the numbers working. Focus more on 3/2 homes maybe even 2/2s.

This isn't to say that you shouldn't at least try to put a deal together. You don't lose anything if you don't sell it...

@Al C.  I meant burned $10k on rehab so far. The whole thing doesn't sound real good. There are better deals closer to rent ready

@Al C.  

  In my area just to paint the walls and put carpet in will run you close to the 6000 dollar mark - not to mention they could have ran into sub floor issues - termites - wiring problems.  Whenever you remodel a property sometimes things can come out of the woodwork.  This doesn't even take in to account the mention of adding a 2nd bath probably adding another 2000

with the numbers given 37k sell price less 15000(not even worst case scenario)  for renovations - you would have to buy the property for 10k to just break even.

I think what Arlan was saying is they know that they are upside down on the property and instead of them bite the bullet on it - they are willing to let you do that for them. 

@Stanley Okazaki   Thank you for you input. That was my initial thought since the sqft is 600 how long to I get the property sold. 

@Arlan Potter   Thank you for clarifying.

@Gabriel Mabry   I would think since they are contractors they would calculate all approx. expenses. If you see in the pics even some of the drywall is missing I would assume that would be a starter to check for possible problems around the rest of the home.

Sounds like I will have to pass on the deal. Don't want to get into other issues along the way.

it's like gambling with people @Al C.  some people are honest - and others are not. Run fast and far- You sir are worth more than working for free .. much less losing money!

Good luck on your search.

no deal,  run away.

Originally posted by @Al C. :

These are just a few pictures:

http://i1381.photobucket.com/albums/ah202/arrowpro...

Okay? I tried to put a few pics but did not let me. Here is the link to look at the ones I loaded.

 I am not an expert at all, but that looks like way more than 6K in work.  Another concern I see is that at least one of the neighboring houses is boarded up also.  I wouldn't pay anything more than the value of the land - even if the house is salvageable.  Given the underestimating of the repairs, I would suspect the selling price is too high.

@Gabriel Mabry   Thank you for the advice. As for the money I was going to ask a relative for some of the cash but of course I dont want to put them nor myself in a tight situation. Thank you. 

@Arlan Potter   thank you for your advice.

@Jesse T.   they where asking 20k but lowered it to 17K but as said could be that they did run into a mess and now they want a way out.

I just clicked on the link that i posted and it seems that it is only showing one picture. Here is the rest:


http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....
http://i1381.photobucket.com/albums/ah202/arrowpro....

Please excuse all the links.
Through photobucket it has different options for posting I tried all but none are working.

My issue with the seller being the contractor is the inherent conflict of interest.  You don't know them so they could be telling you what you want to hear, giving you very low estimates on the make-ready that is required, just to get you to buy it.  

Be wary when going to REIA meetings. I see guys pitching properties at ours all the time which are in no way good deals or look like good deals but are in F areas. Buyer beware!

@Al C.  I looked at the pics, 6K will not fix this place.  Jesse said it all very well above.  Ideally, in rough areas (this looks like one) you'd want to be all in at $20k if you're only pulling $400 monthly rent.   

I'd advise you to keep looking.   

@Chuck B.   thank you for your input on the property. I will be calling the seller and informing him that is is a no go. Thank you much for the assistance. 

I did not read all the post but I would not use the Seller as the contractor. 

Some time these small deal can be fast cash because a lot of people can come up with the purchase amount via saving or 401K. But you need to check and double check the rehab cost; get 5 bids ( Seller being 1). If there is money to be made after acquisitions and repairs? If yes, do the deal!

Michael Henry, Real Estate Agent in WI (#56929-90)
(414) 617-1740

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