How to find out if this can turn into a deal.

Question

Hi everyone,

Several weeks ago I saw a house for sale in a local "MLS-type" of website that caught my attention. It was listed under price for the subdivision and it had been on the MLS for 40 days when houses in the west area of Houston are selling in 3-4 days. I asked my realtor to schedule a visit. We went to the property and first thing we noticed was a nasty smell of dog pee. The house also needs minor sheet rock patch work, carpet replacement, bathrooms updating and paint everywhere. The owner wasn't there so I couldn't talk to anyone. I decided to let it sit and see what happened.

Well, the house is STILL being sold (almost 3 months listed on MLS) and even when the listing price is only at 85% ARV, I've started to think if this can be turned into a deal. The owner would have to drop his price about 30% to turn this to a deal but there are realtors in between (mine and his) and I don't know if its even worth going after it. I have very little money available and would probably wholesale it if I can't get a hard money lender to finance it.

What should be my next step? Tell my realtor to schedule a meeting with the owner and/or owner's realtor to see how motivated he/she might be? Submit a low ball offer? Get a contractor to the house and prepare an estimate I can use to negotiate? Partner up with an experienced investor and let him run the show and learn from him? I'm new and any help would be welcomed.

Tevis Verrett · Answer

@Dennis Rodriguez interesting story, interested in how this turns out.

I will make you a colleague of mine and follow your story!

Tevis

Dennis Rodriguez · Answer

Very true @Matt Buckels !!!

Matt B. · Answer

You know, its funny how the smell of pee in regards to money can mean 2 totally different things. Before you buy it, its a good money smell. After you own it and are kicking the tenants out, it is a bad money smell.

Either way it's still the smell of money. Good luck with the house.

Dennis Rodriguez · Answer

@Darrell Shepherd and @Dave Savage thanks for the info guys.

I know the house is no deal right now with only 15% discount and that's why I said the owner would have to discount almost 30% to even consider it a deal. I also love the smell of dog pee and cigarette smoke when it comes to distress properties. My wife had stomach ache when we left the property so I know that's the main reason this house is still on the market. And I bet the owner knows that's the reason his house is not selling.

I think I'm going to start with my realtor and see what info he can get from the selling agent. I'll schedule a second visit to the house and this time I'll bring a GC along to do a true repairs estimate. That estimate will be my negotiating token.

Let's hope the house doesn't sell in the next days while I go and do my due diligence.

Darrell Shepherd · Answer

That smell of pee is the smell of money! I like to buy them pretty wrecked, and that smell chases off the timid and definitely the do it yourselfers.

The answer to your question is all of the above...

If you're new, you need to have a good idea of the rehab cost to make the offer. A 15% discount to what nice houses in the neighborhood are selling for isn't much of a bargain if it needs 15% of the value in work (and smells like pee. That smell really is hard to get rid of if its bad). Honestly, its not listed at a real bargain or it probably would have moved in a hot market.

I'd go in with a lowball offer...like ridiculously low, and see what happens. You need to have your exit planned, though. If you are gonna wholesale it, you should be compiling a list of cash buyers in your area- look for bandit signs, ads, network at REIAs, etc. The time for having a buyers list is before you get your first deal if you are gonna wholesale it. If you are going to rehab it, start talking to lenders, the terms most hard money guys offer in my area suck. I use private money, but unless you have rich relatives that like you, its gonna be hard to line that kinda thing up for your first deal.

If its a bank owned property they are going to restrict what you can do with it at/after closing, so you need to get the story from the other agent before you make your offer. Example: you make the offer in your name and they wont let you assign the contract and give you a special warranty deed that says you cant transfer the property for 30 days after the sale at closing. This is standard here for bank sales. That severely limits how you can wholesale it. If its a regular homeowner, no worries.

Just have your agent call the other agent and ask the story before deciding on your amount and 'who' presents the offer. Agents usually just want to get the sale so they'll probably be eager for any offer if its been sitting that long.

Dave Savage · Answer

It sounds like it could be a deal, as it has been sitting on the market for a long time. I would first come up with an estimate for the amount of work needed with a contractor after reading the BP and J Scotts book on rehabbing so you have the background needed to understand what it is really going to take to rehab and all of the associated holding costs (taxes, interest, utilities, etc)

Then I would make an offer with your realtor ensuring there is sufficient profit there. Then you will understand the seller's real level of motivation if they counter. Make sure you get a good deal with healthy profit margins under contract and then you can find a partner to flip it or a hard money lender to help fund the project. Start networking at your local REIA to get contacts for rehabbers and HML

Good Luck...if you don't get this one, keep looking and you'll find something else. If you aren't making offers you'll never get a deal!

How to find out if this can turn into a deal.

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