Hi BP family. We were under contract for a property near Corpus Christi, Texas (1 SFH and a 3plex); 3736 sqft. There was termite infestation in both homes but the seller won't budge when we ask for repairs so we cancelled the contract. Now, the seller reached out to us offering to pay some of the repair costs.
Purchase price: $210K
Repair costs: $48K ($20K for siding, $4300 for leaking pipes, $9K for termite fumigation, $15K to replace flooring)
Monthly Rent: $3550
Property Tax: $4774
Home insurance: $5628
Maintenance/Cap Ex: $5K
Property Management: $4100
Please let me know how you would handle the renegotiation. Do you think my numbers make sense? We are happy with just a cash flow of $150/unit. I will really appreciate any input and may God bless y'all for your kindness.
Jona Santiago (Austin, Texas)
20k for siding and 15k for flooring sounds like a bit much. It wouldn’t hurt to get another estimate for the work. That could help with the seller covering some of the costs.
I’m a Realtor in Corpus Christi btw.
@Moses Mesa That's what the contractor quoted us. But I agree with you we should get another estimate. My agent told me he could not find another contractor to bid on the work. I appreciate your input. Do you happen to do property management also or do you have someone you can recommend? Thanks again.
@Jona Santiago . If you know the SF for flooring, you can buy (I recommend) a product called Luxury Vinyl Plank (LVP). You can find it at Lumber Liquidators, Lowe's Home Depot, other flooring stores, etc. Cost will run from about $1.00 - $3.00 Per SF, dependent upon the thickness and style you choose. Anticipate paying around $2.50 - $4.00 per SF to have installed. You'll also need Quarter Round to complete the look. Best price I've found recently is at Lowe's in the bundle package.
You can also price the siding at any of the big box stores. Measure one exterior wall and estimate other from there to get a ball park costs. If you plan to keep the buildings - suggest you use a Hardie-Plank siding. I had a SFR redone with Hardie-Plank last year and it costs about $18,500 for the job, to include some gutter work.
Negotiation: What do you think ARV is? Price you pay should be ARV Minus whatever part of repairs you are willing to absorb. Ideally your RE Agent can shed some light on this along with a sense of how motivated Seller is to Sell.
Reach out with any other specific questions you might have.
You are likely looking at a pretty good headache on this property. That is not a bad thing, our job is to take over 1 guy's headache and fix it ;-) My point is if you take over another guy's headache for $150 a door you may find there are other issues and the $150- a door becomes $75 a door. Are those numbers what tenants are paying already, or what you want to rent the apts out for after the fixes? I didn't look at your numbers because the rent was per month and the other numbers were per year. If the rent numbers are what is being paid today and you think you can raise the rent after improvements it might be a home run. To put siding, flooring, termite damage and plumbing issues I would likely want a minimum of $25k in forced equity along with at least a 10K cushion if things go south. That would mean you would need to be all in at $240,000 if the ARV was $275,000. Subtract the $48K from $240,000 and the offer is $192,000. If you think the ARV will be $300K then your offer would be looking pretty good. Do you live close enough to watch the renovation? If you are expecting someone else to oversee the contractors I would want more cushion. Every time I have tried that I have had to pay to have work done twice.
@Jim Cummings ARV is closer to $320K as per my agent but I wanted to be ultra conservative on my numbers. It's so kind of you to offer for more help. I might need more of your help later when my little Aggie goes to A&M.:) God bless you joy!
@Tom Degroodt , I truly appreciate your detailed advise. 3 units are currently occupied right now with a total rent of $2550 monthly. The 3Bed 2Bath unit in the bottom just got vacant. The seller claimed the renters were paying $1100 monthly. Yes ARV should be more than $300K as per my agent.
We live 3.5 hours away from the rental property. We should be able to go check it every weekend. Do you think it's necessary for us to go check it more often than that and therefore would need to hire a project manager? Thank you for your kind help. God bless you more.
@Jona Santiago . Whoooppp - Gig'em!