Here's the deal I'm contemplating....
Seller moving out of town and needs to sell to pay mortgage. I have negotiated the price to 170K. Home is located in Alpharetta, GA, which is a great city outside of Atlanta. Recently sold homes in the neighborhood sold this year average out to be 225K.
This home needs the roof repaired and cosmetic upgrades. I am a beginner and don't want to get into rehabs just yet. I'm looking to assign the contract to an end buyer but I am unsure if this is a deal for the end buyer who's looking to flip and hold/sell.
To me this a good deal, but I'm nervous that I won't be able to find a cash buyer. Yes I have the appropriate out clauses in my contract but its my first deal and I'm just not confident!
Not looking to make a fortune, just looking to complete my 1st deal.
Any advice would be appreciated!!
Have you estimated the roof and cosmetic costs? How certain are you of those numbers? Can you think of any "gotchas" with the house that you haven't considered?
Yeah, like Amanda mentioned, what will the roof repair cost? Since the roof needs to be repaired, what other damage (ceiling, drywall, wood) did it cause that you also aren't seeing, but a home buyer's inspector may see?) If the ARV is 225k, was that a scaled down, conservative number, or a hopeful number?
Roof repairs are 6K - 8K depending on additional damage (two estimates)
The house can easily be rented as is without making any cosmetic updates, but to get a higher sale price all you would have to do is refinish existing cabinets in kitchen and bathrooms 1K - 2K
I took 6 homes recently sold in the neighborhood around the same square footage and average them out to 225K for ARV
Has to the potential to be higher with unfinished basement!
Do you have any end buyers lined up? Does it fit their criteria?
If so, and your investor is looking to fix and flip, tell him what the repair costs would total out to be, which sounds like 10k max, I heard here on BP that's a rare number for repair costs but I guess it's possible. If you can add up all of the expenses the investor will have to pay including purchase price, and it comes out at 70% or less of 225k you could assign it accordingly. In this case you want to be sure your investor will spend no more than about 157,500. That is 70% ARV rule.
If your investor is looking to buy/hold, find out rent info, tell him about the needed repairs and those costs also. He doesn't have to spend money on those repairs because you said it is in living condition, but if he chooses to he can. I would try to get it to my investor for as little as possible with a decent profit. To me that's the plus about selling properties for buy/hold. As long as it fits their criteria you can work with it.
With all that being said, make sure you have a solid buyers list before jumping into leads.
Hope it helps, and best of luck!
@Jason Wrice - This deal would be a no-go to me as an end-buyer. But there are others out there who might buy it. I say "pass" and keep on looking for a better deal.
I mean maybe it's not the best deal...but it's his first. It doesn't sound like a really great deal but doable. I say don't pass because if you are as unconfident as you say, you want to learn how to get the process down, build confidence, learn as much as you can during the process, and learn from mistakes. You'd much rather goof up on a deal that wasn't the greatest anyway, rather than goofing up on something that was. Take the deal as far as you can and learn from it. If it doesn't work, then a little time was lost and nothing more. That's ok when you are starting, right? That way when you do come across a "better" deal, you'll have your shoes tied when you start running and will be less likely to trip up.
@Bryan L. - Thanks! What about the deal is a red flag for you? Not 70% of ARV?
@Damon Armstrong - thanks that's a great way to look at it!
Like I said I'm not trying to make a fortune, more so build confidence that I can do this and do it the right way.
yes, the price is too high. It will be difficult to find property that meet the formula with the rehab being so low.
@Jason Wrice - Yes, that's the first and easiest red-flag. And what I would say as opposed to @Damon Armstrong is that you will find in this business that most "deals" are not "deals". The odds are that you will have to look at a whole lot of houses before you find a good deal. So learn to evaluate it quickly and then move on.
On the other hand, if you were to also become a Realtor, you could possibly list this house and make some money with it. You will come across many, many more that are possible listings than you will that are possible good deals.
The margin seems to tight for a flipper.
What are the market rents? Is there money to be made by a buy hold investor at that purchase price?
@Bryan L. I definitely see your point. My 2 cents was based on personal experience. My first deal wasn't an amazing deal, but doable. It ended up not closing after all, but what did I waste? A little time....what did I gain? A whole lot of confidence, a little experience, and even more knowledge that I can apply to future deals. In @Jason Wrice 's first post, he states he is nervous he won't be able to find an end buyer so I assume he doesn't have one lined up... So if he passes on this deal and finds a better one, what does he do then? Still no end buyer, and no experience at all vs the little experience and confidence he gained during his trial run. This is my personal opinion but I feel to be a successful investor you have to be prepared first. And to touch base on the "realtor" part...Yes, IF he were a realtor it may be better if he passed on the investment and use it as a listing, however, he is not a realtor. So take advantage of this darn thing and if anything, learn from it.
@Bryan L. I understand everything you said and it is very valid. But why is it you disagree with "practicing" or "preparing" on deals with little potential as a beginner?
Let me be clear that I am not advising to target "little potential" deals....but if one are to fall on your lap as a beginner, why isn't practicing on it to get comfortable a good idea?
My advice is to use this as an opportunity to learn as much as you can.
The process of trying to find an investor buyer will help you build your buyers list.
The numbers don't work for me but Alpharetta is an excellent area.
You may find an investor who will want the property for a rental unit if the rent rate meets minimal cap rate criteria.
Even if you don't end up completing a transaction on this, you will learn a lot by all the feedback you get from potential investor buyers you contact.
@John Marion very true!
If you are lucky enough and explain to your buyers or potential investors what you are trying to do, they may be happy to walk you through the first one or two. With each deal try to become more and more independent. Write down step by step what you do in the deal, why you are doing it, and then go back and write down how those steps worked out for you. This will help you refer to similar situations you came across in the past, and possibly be a reference sheet when mentors or investors ask "so what have you done?" And you can show them step by step what you have done, and why it did or did not work out for you.. @Jason Wrice
@Damon Armstrong - It depends on how much risk there is in the deal. If you are simply wholesaling and have little or no money at risk, then go for it. But otherwise, you extreme caution. I see newbie on here all the time that do not realize that one can lose a significant amount of money in this biz. One big loss can potentially wipe someone out for a very long time. Another thing is that newbies don't fully grasp the ratios involved in this biz. You are not going to find good deals in 50% of your leads. Maybe not even 10%.
I'm like you in that my first deal was only marginal, but I learned a lot. But I also had some safety systems in place to protect against losses.
@Jason Wrice As many others have stated, finding a deal can be difficult and this one seems tight. Depending on how you negotiated, I would try to knock down the price down further with the various repairs that must take place to sell. If it's a deal my office will gladly buy. Good luck and great job getting out there and taking action.
You need to reverse engineer this thing.
You have it at 170k. Does that include your fee?? If not what is your fee going to be??
You need to define based on negotiating and this seller what kind of buyer the end purchaser is.
1. Is it a flipper to renovate and resale?? Not likely as their is not enough spread there. They is there are differences with the 225k average. Some houses might face a busy street, have a flat yard versus sloping, next to power lines, etc. There are many things you may not know that affect the value.
2. Sell to a buy and hold landlord. Alpharetta is a great are in certain parts. the key is what money it will take to get the place in rent ready condition versus the rents it will bring in monthly for the price paid. Sounds like this option might be the best. A buy and hold could possibly land good rents in a quality area and with repairs have some built in equity.
3. Sell to a regular homebuyer. Repairs and issues found would be tough to get a loan.
Sounds like you could do something with this. Maybe pay 50 bucks to an agent for a BPO on it to confirm your ARV thoughts.
@Jason Wrice Are you in a REIA? Find a wholesaler with an Alpharetta buyer list (call some bandit numbers) or a rehabber who works Alpharetta and get the deal ironed out. Find some buyers and advisors.
Come clean with the seller and tell them you're working on estimates to attract buyers. Leave the door open for renegotiating.
You're probably not too far from a deal if your scope is correct.
How much will it cost to fix, what's the state of the rest of the house. How fast are homes moving in the area, what are the latest sales like?
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing