New deal opportunity - Paterson, NJ

4 Replies

My goal is to flip this to a wholesaler if I can.

Property owner reached out to me off one of my signs.

Property Details: 3bd/2a, in a good neighborhood

Asking Price: $115K

Recent Comps are between $160-170K

Contractor estimated repairs: $25K

I figure my max offer should be $94K i.e. (170,000 * 0.7) - 25K

The challenge I have is that the property owner mentioned in my walk-through with him that another investor offered him $105K which he said was also the amount owed to the bank.

The area is good and desirable so the property could potentially good above $170K into about $175K will go to an investor. There were some sniffing around while I was there with the contracctor that gave me the estimate. I don't think I can get it under contract at $94K.

Any creative suggestions on how I can get this under contract?

As an investor with the intent of fixing and reselling I would be willing to pay about $91,000. That is based on an ARV of $170,000 and an estimate of $25,000 for rehab. In other words you would have to get it at about $88,000 to make $3,000 by selling to me.

If investors are willing to buy at 70% then you have to get it lower than that.

Good Luck.

Bill

Thanks @Bill Jacobsen for your comments. As mentioned, i don't think the owner will take less than what the bank is owed i.e. $105K (unverified but that is what the owner said). I spoke with him yesterday and he said one investor had said he would offer him $115K another said he would offer $105K but no one has actually sent him any contracts. So my plan is to offer the following options. Let me know what you think:

All Options below are contingent on acceptable inspection and clean marketable title.

Option 1 - All Cash Purchase

- $86K all cash offer

- Close in 30 days

MY GOAL: Flip to another investor for $91K minimum

Option 2 - Lease with Option to Buy

- 3 yr option; purchase price $110K

- $1,250 monthly lease payment

- $3,750 upfront payment to cover first 3 months + $1,000 option fee

MY GOAL: Tie up property; rehab with contractor over next 3 months for about $25K - $30K; sell for minimum $170K. Estimated profit = $20K i.e. $170K - $110K (purchase price) - $30K (rehab) - $10K (holding costs + lease monthly payments + option fee + marketing fee)

Option 3 - Acquire property subject to existing mortgage

- Take over bank payments $1,300 monthly (PITI)

- Pay owner additional fee of $5,000

- Obtain the deed

MY GOAL: Tie up property; rehab with contractor over next 3 months for about $25K - $30K; sell for minimum $170K. Estimated profit = $20K i.e. $170K - $110K (purchase price) - $30K (rehab) - $10K (holding costs + lease monthly payments + option fee + marketing fee)

What do you think?

It seems unlikely that the seller would take option 1. He would have to come up with cash. Option 2 and 3 are a possibility.

Let me tell you what costs and contingencies I include in my numbers. I try to be very conservative.

First, I assume that I will use a real estate agent to help sell and that the buyer will use an agent. There also will be some closing costs. I budget 7%.

The property will sell at 98% of asking price and the buyer will ask for help with closing costs. Closing costs of 3% for a total of 5%.

Rehab will run up to 20% above estimate.

My ownership will last up to 6 months.

My original number of $91,000 included these factors.

I hope this information is of help. Of course, not each investor would come up with the same numbers.

Good Luck.

Bill

Thanks again @Bill Jacobsen

Using your estimates: Sale Price = $166,600 i.e. 98% * 170,000

I have a RE license so estimating 3.5% for agent commission: 166,600 * 3.5% = $5,831

Purchase Price = $110,000

Estimating other closing costs = $11,662 (i.e. $166,600 * 7%)

Rehab costs = $30,000 i.e. $25,000 + 20% (overrun)

Holding costs = $7,500 i.e. $1,250 monthly * 6 months

Option fee = $1,000

Miscellaneous = $1,500

Estimated profit = ($893)

i.e. $166,600 - $110,000 - $5,831 -$11,662 - $30,000 - $10,000

Laying out the numbers looks like a loss of $893. It doesn't seem like it is worth it except if I can sell it for higher or cut some of my expenses. I also think I may be overly conservative which is not a bad thing. In any case, I will propose Option 2. Thanks again.

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