Am I being nickle and dimed or is this a good deal?

16 Replies

Hey BiggerPockets, I could really use some help here with a property I put an offer on.

I put in a cash offer of 11,000 firm for a duplex that has an ARV of around 70,000 that will need about 40,000 of work and each side could rent for about 750 a month. The seller countered at 12,500 and I reminded them that I'm firm at 11,000. The seller then came back at 12,000 and wont accept less as they thought they could get 25,000 for the property and feel they're being more than reasonable.

At this point, the real estate agent we're both working through brought up that the Tax Assessed Value of the property is 47,800 and told me I would be getting instant equity at 12,000 and could pull some of that out to fund the rehad. I hadn't heard anything about the tax assessed value before and wasn't sure if that is what the home is actually worth? The problem I have is that this property is most definitely not worth 47,800. It hasnt been occupied in 25 years, has a damaged foundation, needs a new roof, needs electrical updated along with the central air units and furnace.

I guess my question is, is the tax assessed value the value I could borrow against or is it only used for tax purposes? Also, any advice on whether this is a good deal would be appreciated. This would be a buy and hold property.

The tax assessed value is not what you borrow against and is probably way behind with the place being in terrible shape and vacant.  The bank will send out somebody to do their own assessment and you will borrow against that.  However, in the shape it is in now getting a loan will be difficult, the typical investor would do the repairs with cash then finance it, maybe you could get a renovation loan to cover the rehab.  If you are comfortable with the area it is in then $1500/mo in rents on a $52k investment sounds amazing.  Are you really comfortable with your rehab estimates?  It sounds like a lot cold go wrong and if it has been vacant for 25 years then it is virtually guaranteed that a lot will go wrong.  I would never let a $1k difference make or break a deal but in this case my gut feeling is that you should walk away because of the rehab.

Originally posted by @Edward Robinson :

Hey BiggerPockets, I could really use some help here with a property I put an offer on.

I put in a cash offer of 11,000 firm for a duplex that has an ARV of around 70,000 that will need about 40,000 of work and each side could rent for about 750 a month. The seller countered at 12,500 and I reminded them that I'm firm at 11,000. The seller then came back at 12,000 and wont accept less as they thought they could get 25,000 for the property and feel they're being more than reasonable.

At this point, the real estate agent we're both working through brought up that the Tax Assessed Value of the property is 47,800 and told me I would be getting instant equity at 12,000 and could pull some of that out to fund the rehad. I hadn't heard anything about the tax assessed value before and wasn't sure if that is what the home is actually worth? The problem I have is that this property is most definitely not worth 47,800. It hasnt been occupied in 25 years, has a damaged foundation, needs a new roof, needs electrical updated along with the central air units and furnace.

I guess my question is, is the tax assessed value the value I could borrow against or is it only used for tax purposes? Also, any advice on whether this is a good deal would be appreciated. This would be a buy and hold property.

Foundation issues are scary and could cost you a lot of money that you didn't include in your original estimates. I would offer an even lower amount. Have you looked over the property with your contractor? Are you getting your comps from a local appraiser?

Taxed assessed value is the number that the county uses for tax purposes. It's 99% of the time lower than the actual value. The Rehab loan will be based off the ARV not the taxed assessed value.

Just make sure your numbers are spot on or else you could be in trouble down the road.

1. If $1k makes or breaks a deal it's already on the bubble. 

2. If they could get $25k from someone else they wouldn't take $12k from you.

3. It sounds like it needs more than $40k worth of work based on your description.

4. No, you cannot borrow against tax value. You can only borrow against market value, which is going to be calculated by an appraiser (or sometimes the bank if they desktop appraise). 

I've already had 2 contractors give me an estimate and both came in around 45k so far. I was hoping to save some money by doing my own flooring, drywall, cabinets and painting which is why I'm estimating around 40k. My wife's uncle has been in construction for over 20 years and I could have him look at it Sunday, but I've been iffy on bringing in family because of the horror stories I've heard about going into business with family.

I dont want 1k to be the difference between getting started on this path and putting it off for another year like I've already done. I could maybe save that 1k somewhere else? I would gladly spend 1k if it meant having a cash flowing asset that would help me out.

That being said, I think I just answered my own question about whether the nickle and diming is worth it or not.

As to the tax assessed value my real estate agent says i could borrow against, that kind of makes me feel iffy about this agent. That sucks because I really liked her and was hoping to put her on my team as she also invests in real estate too :/

How would I be able to figure out the actual value of the property? Would I need to hire someone to look at it? Or is that a contingency I could put in a contract during my due diligence period that the property has to assess for the value i was quoted by the real estate agent?

You will likely not be able to get a loan on a property in this shape to do the rehab. If you don't have cash for the rehab then you need to make the sale contingent on getting a renovation loan. Getting the renovation loan will be contingent on the ARV, your income, your debt, your reserve cash The bank will require an appraisal which will cost you $500-600, it will tell you what the ARV will be, or at least the ARV they will use. They will release the funds little by little as the work is completed and inspected.

A 25 year vacancy is crazy, a lot can go wrong with a 2 year vacancy.  Leaking roof for years?  Is the electricity and water on so you can assess them and the sewer?  I know you want to get started but this sounds really high risk, and a lot of sweat, for 19k in equity.

You’re not going to be able to borrow Anything from a traditional lender....the property is not in good enough condition and they rarely loan $50k or less.

I'm not too worried about borrowing to do the renovation, I have private money helping me out. I only got confused when the realtor had tried to tell me I could borrow against tax assessed value. It would have made this a whole lot easier if I could do that and I'm grateful to everyone for helping me learn otherwise.

As to the 25 year vacancy, I wasn't really concerned about the state of things like plumbing and electrical because I was just assuming it all needed replaced anyway, so I never thought to worry about making sure it worked. (If this is me being colossally stupid, please let me know)

The duplex is in a good area of the city, near a really good park, 2 blocks away from the main road through the city and situated right in between both public and private schools. If I had to grade it, I would say C+ area.

It’s 1000 dollars. If you think it’s a good property that will be a money maker for years to come give them their 12k and don’t think twice.

@Edward Robinson . Tax value means next to nothing. Realtor assumes a lender would value it higher and thus be willing to lend you more, put zero credence in that load of manure. Forget about trying to get some guarantee on valuation. Trust your own numbers. You planned on having $51K all in at least. $1K more is less than 2% variance. That’s nothing in this business, it can’t be measured that exactly. If you like the opportunity at $51K you should still like it at $52K.

Originally posted by @Edward Robinson :

I'm not too worried about borrowing to do the renovation, I have private money helping me out. I only got confused when the realtor had tried to tell me I could borrow against tax assessed value. It would have made this a whole lot easier if I could do that and I'm grateful to everyone for helping me learn otherwise.

As to the 25 year vacancy, I wasn't really concerned about the state of things like plumbing and electrical because I was just assuming it all needed replaced anyway, so I never thought to worry about making sure it worked. (If this is me being colossally stupid, please let me know)

The duplex is in a good area of the city, near a really good park, 2 blocks away from the main road through the city and situated right in between both public and private schools. If I had to grade it, I would say C+ area.

It's not stupid to just assume the mechanical need replaced; if anything, it gives you more breathing room if you find out otherwise (unlikely on a place that's been vacant 25 years). You should consider the permitting process wherever this is, because it's entirely likely that everything mechanical will end up having to go through a new permitting process more or less the same way as a new build. In my city, for example, once electricity has been disconnected from a unit for 12 months or more an entire new electrical inspection is required before you can get utilities turned on. That means anything that would have been OK if it had been left in service - old knob and tube, for example, that wasn't disintegrated - will now have to be changed out. That's where I am. It may be different in your locality, so you should look into what is involved in permitting, as that can add a lot of complexity and time to any project. 

I've been informed about the permitting needed by the contractor I'm going to be using. There is a lot that will need to go into this place, but that's all been figured into the budget.

As for whether I'm going for it, I went ahead and agreed to the 12k. Now I just need to come up with the money @[email protected]