So I paid my money for the very basic course with Fortune Builders and it is packed full of great information covering the basics. I tried to find anything that would help on what I walked into, but to no avail. I literally paid the bargain price so no mentor included.
Okay, here goes, we have a housekeeper and she mentioned she is desperate to sell her house on 80 acres. I went through the list of questions I've been taught to ask.
1. What's your motivation to sell?
2. Are you the only person on the deed?
3. Your the mortgage holder as well?
4. Tell me about your home.
5. Do you know what is owed still?
That's when the strange happened. So her motivation is she just wants out, the house partially burned and due to medical issues, she had no insurance. (The fire department did far more damage than the fire, but not their fault.) She is the deed holder and the decision maker. The property has a barn that has had at least 2 additions added, it has a trailer house on the property as well, but the septic has to be replaced for it. The son is working on that now using regular 500 gallon containers. Not anywhere near code. She had a deal with the guy she bought it from 6 years ago, but no official contracts although her name is on the deed. She thinks she only owes $20,000. Here is where it gets interesting. The guy she bought it from was going to come to Colorado and make it official with a post dated contract (Her words, not mine) and told her she did only owe the $20K, but he died before he could make it up.
Now the property is in probate and the children of the dearly departed told her she owes $54,000. She hired a lawyer then fired her soon after over a payment dispute and because she was not getting anything done. She did learn that even though there is no official contract, the deed is legal and she has every right to sell it. It must be, she has a realtor listing it, but said she wants to fire him as well. (I made sure she knew I could not advise her on that, I have no issues with working through a realtor.)
The house, (If you can call it that,) is a total loss not only from the fire, but it really looks like something out of the Texas Chainsaw Massacre. Its more of a shack on a postage stamp foundation. It's only 960 square feet with 3 bedrooms and 1 bath. I did a walk through and simply stopped writing down what was wrong because everything, "And I mean EVERYTHING has to be replaced."
It would be cheaper and faster to demolish it, dig and pour a basement then buy a manufactured home of about 1800 square feet and spending $14K on giving the barn and out buildings a face lift, adding a gravel drive, landscape, plant trees, fix fence and sell or demo the junky trailer. Based on my current research it would look like this:
Offer: $80,000 Based on land values and the only comp in a 10 mile area the past 750 days.
Demo costs: $10,000 For both house, foundation, trailer and some fencing and an outbuilding.
New full basement: $8000 Plus or minus $1000 depending on the Double Wide Modular
Double Wide $115,000 Average higher end home with sizzle features
Landscape/Clean up $14,000 Face lift on barn, clean up horse pens, fix or replace fence, add a gravel drive, plant 6 trees, add accent plants and shrubs, place a 500 gallon buried holding tank for watering needs etc.
2 car garage $17,000 Add a 24 x 24 detached 2 car garage. Help to increase the value a lot.
Holding Costs $10,000 Plan on 18 month hold to sell. My realtor friend said hold times average over 400 days in rural areas.
Total Investment $254,000 Based on my repair estimate to just repair the existing home would have been $125,000. Investment would have been $269,000.
Interest paid $38,100 That is "if" it took the full 18 months to sell, based on 15%, could be lower maybe??
Final sale price $350,000 Based on upgrades, a full basement a new garage and cleaned up property and other sales at $380K+
Closing/Title Fees $10,500 Based on 3% if she does fire her realtor. I am not sure here though, still learning.
Estimated profit $47,400 This could go higher the faster it sells.
All of this was based on my research so far, I still need to determine the legality of buying during probate and how that works as well as nail down some of these costs. They are all an average or prices given to me from a real estate friend and using my deal analyzer software. According to Zillow, houses similar to what I am planning have averaged 375K on only 40 acres within 25 miles of this property. I can see splitting the land into one 40 acre plot and two 20 acre plots for future builds.
I'm obviously a novice and am still learning, but I feel like this is just not enough to risk it on my first deal. There is no guarantee they will take my offer anyway, they turned down an offer for $120,000 last week. My only defense will be the total I will need to finance to get this done. Anyway, go ahead and rip this deal apart. Be brutally honest, I need it. I have until Wednesday to make an actual offer, but have plenty of calls to make to lawyers, the probate attorney representing the beneficiaries nail down actual bids for the ball park ones I assume here. Oh yea, and start looking for private money as well as a rehab lender. The hold time of 400+ days worries me. Lots can happen with that long of a hold.
Sorry so long,
@Chad Bilstein - It sounds really complicated, even for an experienced investor, with not much upside
@Chad Bilstein so there are two parts to the deal. Part 1 is the purchase and Part 2 is the exit.
Part 1. If the property is listed with an agent, get it under contract and the title company will work out all the noise and non-sense that your house cleaner/seller is making as well as solving the probate issues. This does not impact you one bit except it will require patience while someone else takes care of it.
The seller seems motivated and distressed but once the property is listed, the likelihood of buying at a discount is greatly diminished. If you could have gotten it under contract before the agent was involved, then you have closed and resold it for a profit or just wholesaled it.
In the future, get the property under contract at a good price ( a good price is one that someone with a bit of experience would know is a good price). Then hire folks to solve the problems. The property will pay for their expertise. Calling attorneys to get free advise about a hypothetical deal is a waste of time. Use the time while everyone is trying to solve the problems to make sure your exit is solid.
Part 2 - without knowing exactly where it is I would say a few things
1) A comp from 25 miles away means nothing. I say that again, it means nothing. You have no comps if that's all the data that exists. Do not do the deal with out data. You are speculating if you do.
2). Value the deal for what the land would sell (you must have comps for this) for and then deduct the amount needed for demo/fix-up. The barns are of little value unless the buyer is willing to pay for barns. Some buyers want barns but aren't willing to pay for barns.
3) South of Pueblo land is valued around $1,000 per acre. If your approach was profitable, all that land would developed (modulars added etc) and re-sold.
4) seems unlikely that you will get the property for $80k when they turned down an offer for $120k but without more info we don't know why.
5) Splitting the property maybe a possibility but if the agent has any knowledge it should already be built into the asking price.
6) Water (well) and sewer (septic system) are not insignificant expenses not included in your analysis sort of lumped into your Landscape/cleanup budget.
The keyword of "probate" brought me here. How far along in the administration process has the estate been in?
You mentioned children of the decedent. Are they the PR's step-children?
If so, this may be problematic. How long ago was probate filed? Last month, 2-3 months ago? In CA it's usually 7-12 months before a case is settled. (Should paperwork be filed in a timely manner)
It may be the same for CO.
Yes, you can buy any probate property during the administration process. Just make it "Subject To."
(Chad Bilstein makes this offer subject to Mark Pedroza being named PR of the Jane/John Doe estate}
If the property is upside down:
1) Let it go to the bank.
2) Negotiate a short sale for the property.
3) Anyone can start the probate process (buy out the PR's and any/all heir's interest regarding the property.)
As to transfer the title the property must have clear title.
(This is not legal advise nor am I an attorney)
I'd walk away from this "deal." Can you find a single wide that need works and place it in a park then rent that out? Those numbers are a lot easier for your first one..
Thanks Mark, I was going to call the attorney in charge of the probate process for the estate to find out that info, but in looking at the entire picture see that my estimates are way off. I would never get above $250K at final sale for this deal and the potential profit would be less than $35-$40K. with a potential 18 month hold time its just too risky, especially for a first time deal.
My original thought was to buy it, split the land into one 40 acre plot and 2 20 acre parcels. Then have 2 new home sites to prep and sell. Problem is, I have to use the land as part of the valuation for the sale so dividing it would take $40K off what I could ask for it assuming it is $1000 per acre. I will pass on this one.
I have looked into starting small with trailers. That's easy and the cost is minimal for set up, skirt, weatherproofing etc. Buying a trailer on site in a park is best, but even moving one to a park is doable. This deal just seems so good except for the fact that the owner is delusional thinking its worth $150K.
I spoke to a couple of realtors I know just to be sure I did my full due diligence. They tell me anything above $220K in this area would be about the max. That's about $40K in the wrong direction. I'm glad I went through this exercise, it taught me a lot very fast. I'm just glad I didn't learn by losing my shirt, pants, shoes, and one sock on my first deal.
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