First Deal offer/accepted

7 Replies

I've been patient for many years. When the market was going crazy at the beginning of the run-up in 2002, I didn't have the money or the time to invest. My wife and I bought our primary residence and then upgraded to a single family home in the fall of 2005, just about the top of the market. When the market bottomed out in 2008, I was ready to get in the game but my wife wasn't. Sales were all cash from investors in the market I was interested in. 

About a year ago, we noticed our elderly neighbor starting to show signs of health issues. Then she disappeared, we didn't know what happened. Months went by and no one was at the house. The first sign of human presence at the house, I approached and asked what had happened. I was put in touch with the woman's heir and we began to talk. Being that this would be my first deal, I am super cautious, or trying to be, about the details. I gave her a verbal offer that I knew was low, but fair for a 1950s home with no improvements in 'as is' condition. She asked if she could get an appraisal first to see what the house was worth, since I didn't think that there was much value in the condition of the home, I agreed. The appraiser came back $100K higher than my offer. UGH...

Now I started doing research. I started picking apart his valuation and the comps and his assumption and adjustments. Bottom line, I think he inflated the numbers or didn't make adjustments based on land values. So I asked if she would agree to a home inspection before I made an offer to see what the actual condition was and she agreed. EVERYTHING FAILED. The hot water heater pilot light wouldn't light, only one window in the house would open, there was not a single grounded outlet in the home, etc... So I did some math, and then I would do some more math. I finally gave her an offer that was $25K higher than my initial but was more informed. She rejected it and said that there were other interested parties. "That's fine." I told her, as I reassured myself that I wouldn't get caught in a poor emotional decision. That was the last time I heard from her from February until Tuesday night.

After trick-or-treating with our kids, I received an email asking if the family was well and if I was still interested in the property as she was now ready to proceed. I told her my wife and I would discuss and get back to her. Her response startled me and I jumped into action. Since we both agreed to keep costs down by not hiring a realtor, I used a legal website for a free contract and drafted the offer I made in Feb. If she was coming back to me, then my last number was still good as long as the condition of the house hadn't changed. After some discussion about the contents of the home, she agreed to empty any personal effects but would leave the furniture and any new items. There are a lot of clothes that still have the tags on them, which will go to charity. 

And then at about 5:30, we asked our neighbors to be witnesses to the signing of the contract. Fortunately, I have a great mortgage broker that I have used to re-fi my primary house numerous times and the knowledge that while I didn't pay a rock bottom price, we are under contract 5% below the tax assessed value and after she called a junk company to clear the piles of stuff, the house looks better than I remember. Although the kitchen still needs a gut job and I'm pretty sure the ceiling tiles in the basement are asbestos. 

Now for a 30 day close that will have two federal holidays in the middle. 

I intend for this to be a BRRRR, and kick off a side hustle of 2 deals per year. The Cash on cash is >5% depending on the interest rate, closing costs and repairs/improvements. One of which I have more control over.

Wish me luck, I'll keep you posted...

Dave in NOVA

Howdy @David Jason

First, congratulations on getting in the game.

Please post all your numbers (original offer, Seller asking price, counter offer, Rehab estimate, projected rental rate).

The very first thing you should always do on BRRRR deals is establish a good ARV that is based on recently sold comps. Have you done this? If so, what is it? The reason I ask is you develop your offer price off of the ARV and Rehab costs.

ARV x 75% - Rehab Costs - Holding Costs - Closing Costs = MAO

In order to get to the MAO (Maximum Allowable Offer) you need the ARV.

How were you planning to finance the purchase?

Just trying to help you cover all the bases.

@johnleavelle,

Thank for the reply.

I didn’t have that formula so when I plugged in my numbers I get a range of values based on the ARV. There was a fix and flip around the corner this summer that closed for 610k and was listed for 845k post reno. If I use that number, my contract price is 20k below the MAO.

I’ll post my numbers after we close. Don’t want to jinx anything.

Ds

@David Jason

Congrats on your first deal.  PM me if you want some neighborhood comps.  Biggest mistake of first time flippers is that they go overkill on the renovation and end up breaking even or losing money.

Best of luck!

David,
Congrats on your purchase! What was the name of the legal website you used if you don’t mind me asking?

Thanks,
Jake

Jake,

The website was LegalNature. I won’t use them again and canceled the free trial after talking to the title company about the “Virginia template”.

Ds

UPDATE:

We closed yesterday. Here are the purchase numbers...

First appraisal: $600K
Offer: $525 in Feb after home inspection.

Offer accepted in Nov after other interested parties needed alternative financing for the deal.

25% down and a 30 yr fixed 4.25% note.
Lender appraisal- $585K

All major systems will be replaced
Lower bathroom is a gut and expand
New roof
Referb kitchen keep 60% of floorplan and cabinets
Paint
Sump pump and drains
Blown in insulation in the attic
Windows are maybe
Egress window creates a 4th bedroom in basement
3 months of carry expenses additional

All improvements - $60K budget.

Rent at $3400/month target date of 1 Apt for tenants

Expected 12% return on cash

I know we didn’t pay rock bottom price, but the non-tangible is that this is the house next door and we now control our destiny. A developer would have knocked it down.

Let me n ow your thought and advise going forward.

Thanks for the encouragement

Congrats on your first deal! That first step is huge!

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