What am I doing wrong...or better yet have I do ANYTHING right??

10 Replies

I have a property under assignment contract in Citrus County Florida and need some advice. First the numbers

3br enclosed stilt home on .45 acre, with waterfront on two sides in a secluded area but within 30 minutes of the largest city in the area... Ocala. Private bridge and no other homes on the same side of the spring...the location is amazing. 

The home needs some minor repair work as far as things that MUST be fixed...$5000 would cover the have-to repairs. To update $15,000... the home has paneling, blue carpet, yellow bath fixtures and outdated cabinets.

ARV is $105K and I am asking $75K...I know these numbers do not work for rehab. I do have some room to negotiate but have not even had a serious offer yet. I set the price so I could give a bit and so I could pay the closing if need be to get a deal done.

How can I market this to a buy and hold investor or even a retail buyer? I have beat up Craigslist listing this thing and have reached out to area landlords. Using Facebook I get a ton of "tire kickers" but no serious buyers and I cannot keep driving 30 minutes each way to show this home just because someone is dreaming that someday they can live on the water. Do I require a per-qual letter or proof of funds to show?

I hope I have not gotten into this home to deep, the location alone I was sure this home would go fast but now I have been sitting on it for over 3 weeks and the clock is ticking.

Advise???

Lower the price.

A few things you need to consider

What are the lower comps in the area since it is a rental the high comps do not matter as much.

Did the construction of those homes match yours.

Is the location of the property a rental area or home owners area.

What are the repair estimates and your fee.

The only thing that makes sense to me is that the numbers are wrong some where down the line. The assignment fee is to high, the repairs cost are not accurate or the sellers or the home is just not desirable.

I have no idea what the property is worth as a rental but based on your numbers no investor would buy to fix and flip. The price is too high.

Good Luck.

Bill

@Manny Cirino

It is a rural area, so the comps are rough. I ran comps against all listings I could find in the subdivision for the last 6 months and subtracted 20% to come up with the ARV...I thought this was being pretty conservative. The only property that sold for less than the ARV was a foreclosure that sold for 55K...everything else was well over $100K

The comps were all similar in construction

I would say this is more or a owners area than a rental area...but many of the properties are weekend vacation property. We have a bunch of "weekenders" in the area.

I mentioned the have-to repairs would be under $5000...mainly repair the soffit and facia on the front side of the home and new gutters all the way around, general clean up and landscaping and a fresh coat of paint outside.

To update the inside the estimate is $15K...but it is very liveable as is, ex: the carpet is in good condition...but it's blue, the bathroom is in good shape but fixtures are bright yellow...the home is 80's dated but everything was very well taken care of.

My fee is flexible but have it priced so I can cover closing (thought this might help to sell retail) and make roughly $10K...I left some room to negotiate.

Suggestions on how and where to market this would be greatly appreciated, Craigslist is only generating tire kickers as is social media

@Eric Robertson My curiosity has gotten the best of me. In your post you state that you "...know the numbers do not work for a rehab..", so what was your primary and secondary exit strategy when you put on a contract on the property? Also, needed information missing in your scenario is a good estimate of market rent for that particular property if rehabbed. If a buy & hold investor purchased at $75K and had to invest another $15K to make it rentable (you say $5.0K but count on any investor using at least the $15.0K figure), then he would have $90K in the property. The investor would be hard pressed to obtain financing without putting even more money into the deal, since we are now looking at a 86% LTV property. However, if he could finance the deal, PITI would amount to more than $650/month. If expenses were only 35% of monthly rent (45%-50% is more the rule of thumb), assuming a 1.2 debt coverage ratio, the investor would need monthly rents of at least $1,200/month+.

Is this an area where monthly rents average at least 1.25% sales price?

If no, lower price. A lot.

David Begley, Real Estate Agent in GA (#357208)
Originally posted by @Bill Jacobsen:

I have no idea what the property is worth as a rental but based on your numbers no investor would buy to fix and flip. The price is too high.

Good Luck.

Bill

   Thanks for the input

   I understand the numbers are way to tight for a rehab situation, as I mentioned in the original post. My real question is since it looks like I am in too deep for a serious investor what is my best course of action? Do I try and re-negotiate with the owner? Do I focus on trying to sell to retail buyer? Do I ask for pre-qual letter or proof of funds before showing so I do not waste time with tire kickers? how and where should I market this?

If you are able to close on it and do the minor rehabs yourself, then you may be able to market to a retail buyer. If you are able to close, but not afford to rehab, find someone to lease purchase and work out an agreement where you share costs for the remodeling. Require sufficient deposit/down that is non-refundable to help with your share and if the Lease Purchaser closes in 12 months, you win; if they don't, your house is rehabbed, you keep deposit and put back on the market. If you are not able to close, immediately drop the price just barely north of your breakeven and count your blessings your lesson wasn't more costly.

David Begley, Real Estate Agent in GA (#357208)

So I understand the 20% deduction from the ARV. But that is not going to work. The property from what you stated is or should be for a fix & flip. Using a wholesale formula factoring in your a $10,000 assignment you should be offering $48,500 and selling at $58,500.

Personally I would lower my fee between about $2,500 - $5,000. Lets say $5,000 you would offer about $53,500 and still sell at $58,000. this way you offer is more likely to be accepted.

Another issue I think you maybe having is(and I am assuming) Is that the property is a wood frame, am I correct? Most Florida investors will not touch wood frames because of the mainaince involved. Either possible termite damage or warping from the heat. There are many more issues you can have with a wood frame on a peer and beam foundation.

And as David pointed out if you want to sell as a rental. work your numbers out as a rental. This way you can take the guest work out of it. Calculate ROI, NOI, Cap Rate, etc...

Originally posted by @David Begley:

@Eric Robertson My curiosity has gotten the best of me. In your post you state that you "...know the numbers do not work for a rehab..", so what was your primary and secondary exit strategy when you put on a contract on the property? Also, needed information missing in your scenario is a good estimate of market rent for that particular property if rehabbed. If a buy & hold investor purchased at $75K and had to invest another $15K to make it rentable (you say $5.0K but count on any investor using at least the $15.0K figure), then he would have $90K in the property. The investor would be hard pressed to obtain financing without putting even more money into the deal, since we are now looking at a 86% LTV property. However, if he could finance the deal, PITI would amount to more than $650/month. If expenses were only 35% of monthly rent (45%-50% is more the rule of thumb), assuming a 1.2 debt coverage ratio, the investor would need monthly rents of at least $1,200/month+.

Is this an area where monthly rents average at least 1.25% sales price?

If no, lower price. A lot.

 I admit I was over zealous when I got this under contract, I know it is a great price for the area and that a waterfront property for $75K is pretty much unheard of in the area. My "hope" was that someone else would see the potential that this property has. This was my first "deal" and I guess I have made just about every mistake that could be made.

To an average Joe homeowner who over some time was to put $20-$25K into it you would easily have a $120-$140K home. As I stated above I took the comps in the subdivision and took 20% right off the top to come up with my MAO which is $63K (there was not a huge number of comps to work with - 5 if memory serves me correctly) ...I thought I was being conservative and do not want to tell a perspective owner "once you fix this place up it will sell for $130K all day long"... because it IS in a unique area, it IS rural and not everyone wants to live this far off the beaten path.

 I am not in a big city, so getting rental estimates is difficult. On a standard lease best estimate would be $750-$850/mo  but in our area vacation rentals are popular and can demand over $1000/week and with this location I would say you could stay booked rather easily @ $600-$800 a week.

This advise is not going on deaf ears....I am in too deep for the market. I need to stop and evaluate my numbers and either back out of the contract or explore other options 


Definetly dont just back out, that is never a good thing. Just go back to the drawing board. You could always renegotiate a lower price or if the owner does not have a mortgage on the property get them to sell to you on terms. for a low down payment.

You still have options.