Case Study - Newbies/Oldies, What would you do?

6 Replies

Here is one of my own deals for those looking at getting started. I just closed this one out last week.

Case Study –

Received a motivated seller lead from Facebook. Property details:1600 sqft, 3 beds, 2 baths, 2 car garage, 1974 built, corner lot. Rehab needed for rental – need to finish previous work started by owner, finish tile countertops, finish trim, install flooring in 3 bedrooms and kitchen, replace broken glass on 1 window, paint interior, install new door to closet, paint exterior, repair exterior wood rot, install new dishwasher, install new oven, install new microwave, clean/clean/clean (pets urinated throughout home). Estimate based on pics $8K

Property is located about 8 hrs from where I live but is located in same area as my parents. My father is a master plumber and very handy, I can utilize his service to GC project.

Numbers:

Amount Owed - $66K

“As-is” Value - $70K

ARV - $85-90K

Payments - $668 PITI

Market Rent - $1K

Owner owes approximately $56K on first and $10K on second. 30 Year Note with a maturity date of 2035. Here are pics of home.

WHAT WOULD YOU DO?

@Rocky V. You don't say how much work it needs.  It looks minimal, but then whey is the as-is value $70K?  Without that info it is hard to evaluate as a flip.  It definitely has potential as a sub-to with a 6-year payoff.  That would give you time to sell it rent-to-own or just cash flow for a few years then sell it.

It's not an equity play nor do you add much value for rehab. It's not a debt play as I'm presuming loans are conventional. 

The asset play is minimal current opportunity. An appreciation play? It's not is Austin so it's the wrong part of Texas. This is what accountants refer to as FIST: First in, still there.

I'm not feeling it 

pull permits to make sure that homeowner repairs are within code, if you are doing a flip or renting it out you want to make sure that the improvements are safe or you could end up with unexpected costs.

For a buy and hold not too bad on the price, for a flip the margins are far to slim.

pass on doing a flip.

maybe lease option?

@Larry T. @Rick H.

Thank for responding.  Here is the outcome:

Gave the seller 3 Options:

  1. 1. Purchase outright for $56K which would mean she would need to bring about $10K to closing.
  2. 2. Take over payments immediately and offer her debt relief (Subject To)
  3. 3. List with a Realtor and it might sell in 3-6 months. She may also have to bring money to closing.

She chose option 2 and asked if she could stay until Feb 1st.  I took over property on Feb 1st by having her sign all appropriate sub2 documents.  There was one glitch as she originally cosigned mortgage with her now deceased step mom.  I figured I would have her sign all docs that I have and get an Affidavit of Heirship drawn up after speaking with my title company.  This caused me not to file deed (A blessing in disguise).

I spent 1.5 weeks in south Texas rehabbing property with the help of my father. Total rehab ended up at approx $5,500. A sign went up on property for lease and sale by owner. I was asking $1K for rent and $90K sales. To my surprise we received more calls from people looking to purchase property. Many wanting me to allow concessions for closing cost but I stayed firm and mentioned that I did not want to sell but if I received full asking I would. A couple weeks later I received a full offer from a FHA buyer with no concessions. I would not have been able to accept an offer from a FHA buyer if I recorded deed.

I used standard TREC contracts with original owner as she was still legal owner of home and FHA buyer, title company took care of all Affidavit of Heirship docs and all I had to do under special provisions is put that all proceeds from sale would go to my company.

Received a check last week for $20,300

Total Cost: rehab, PITI, closing costs, etc. $8,500

Profit $11,800 and 1.5 weeks of quality time with dad (Priceless)


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