I have a deal I'm working on:
The house is owned free and clear in DFW. However, there are $40,000 in back taxes. The house was originally bought for $17,500 in 1966. The house will need plenty of rehab. We've prepared comps for the deal, but I've also read about people paying the taxes and throwing some cash on top to satisfy the seller. The ARV on this property is $150,000. What is a reasonable offer? Exit strategy is to wholesale.
@Jon C. How much will rehab cost? The most a flipper will pay is somewhere in the ballpark of $105k ($150 x 70%) minus rehab, so if plenty of rehab is greater than $65k (105k - $40k), there's not much else you can do.
I wouldn't worry so much about "reasonable" offer as I would worry about "the most you would buy for". First, you need to find out what their situation is, and get them to understand the situation (how much the house is worth and taxes owed), then get them to throw out how much you solving them problem is worth to them. Ie. get them to put down a price first.
Who are the back taxes owed to? Are they definitely to the city/state? Or are they to HOA or some other organization? If so, you could go and negotiate with them to reduce those fees if you'll pay them outright, thereby giving you more room to play with.
@Jon C. make an offer you feel you can justify to the seller. Remember if you are working DFW, there are probably 5-6 other investors that will contact your seller within days. Make sure that all that is outstanding is the $40k in taxes. If they are that far behind, I bet there are other liens against the property as well. You will want to take that into account .
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