What would you do?

6 Replies

Hey guys,

I have a lead on a 3 bedroom, 1 bath single family house in a nice suburban area. ARV is about $135,000 (conservatively). The house was built in the 50's. The biggest problem is a previous owner added an addition that expands the kitchen and the master bedroom without a foundation and it's now separating from the rest of the house!!

The current owner bought the house without an inspection (the seller's agent told her she didn't need one).  She now just wants out because she no longer lives in the house and doesn't want to continue paying taxes and utilities on the place.

The property is now free and clear and market values are pretty good in this area, but I wonder if that's enough to make this a worthwhile deal.

Advice please!

Thanks,

Gary

Hey there @Gary Shaw  .

What can you get the property for and what exit strategies do you have in mind?

I'd guess that the addition would need to be taken down which could ruin the deal if you can't get it super cheap.

Every flip has problems or you would not have the opportunity to make a profit. You have to determine what it will take to make the property worth the ARV. Sometimes, all you have to do is paint the interior. If that is all you have to do their will not be a lot of profit. If there is more work or more unknowns then there should be more profit.

First, I would talk with the seller to make sure they understand that the price you may offer will be low.  If they do not accept that then don't waste your time on it.

Next, I would want to know what the alternatives are. That will take a contractor and probably government code people. You have to cost out the alternatives and understand that each alternative may change the ARV.

You then determine whether it is worth it.

I am currently dealing with two properties with two different problems.  One property has no water source.  The other property is in city limits but is only accessible by a county road.  City is currently saying I can't build.

If you are buying, fixing and selling properties you are a problem solver.  You are creating value.

Good Luck.

Bill

I often tell people that "almost any property can be a great deal at the right price and/or terms." Your offer simply must factor in the price and time required to repair or replace the additions. I might put the home under contract at 60% of retail, minus my estimated repair costs and then get some contractors out quickly to get a more accurate evaluation. 

Let's say I estimate repairs (including mitigation for the foundation issues) are 35K. My offer would be 46K cash ($135K x .60 = 81K - 35K = 46K). I would ask for a week or so for due diligence and if the contractors gave me a really ugly number I would show the repair estimates to the seller and try to negotiate the price lower. 

Because the home is reported as "free and clear," I would possibly present an alternate offer of 5K cash down and monthly payments of $700 per month for 6 years for a total of $55,400 to the seller. If the offer was accepted I would verify that there truly are no liens or loans with a title company. 

Either of these deals could make a great wholesale deal or a good fix&flip or even a good rehab to rent, assuming your 135K ARV is accurate and that monthly rents would cashflow $100 per month or more.

I hope that gives you some ideas that help. By the way, everything is negotiable and flexible according to yours and your sellers needs. The recent BP podcasts #75 and #77 are fantastic for ideas on negotiating with sellers.

Have Fun and Make Your Own Luck!

One thing (of many) to be careful of with illegal additions is taxes. Municipalities are hungry for money, and if extra living space was added and not taxed for many years, they could come looking for back taxes.

Originally posted by @Bill Jacobsen:

I am currently dealing with two properties with two different problems.  One property has no water source.  The other property is in city limits but is only accessible by a county road.  City is currently saying I can't build.

Hi Bill,

Do you have a neighbor that you could buy legal access from?

Matt,

Great tip. Hadn't thought of that one.

Gary

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