What do you think about this deal?

Question

Hi,

I have a potential deal that I am considering offering and wanted to get a 2nd opinion or two about my offer. Here are the numbers:

ARV: $447.5K
Ask: $397.5K
65% off the ARV: $271.2K

Here is what Im thinking. I will negotiate a contract to buy @ $271.2 (cash). The house is in pretty good shape, so I dont think it will need to many repairs. I estimate that it should take about $75k to cover carrying cost, repairs, and assignment fee.

So that would mean an investor would have to put about $75k in up front, totaling up to a total cost of $346.2k to the investor.

Im thinking that leaves him/her around $101.3 in equity after everything is done based off the ARV.

What do you think. Is that a good deal?

Mitch Freed · Answer

I agree..if your exit strategy is to flip the deal to an investor then you may want to revise it a bit.  As an investor, ask yourself if you would take that deal.

What is owed to the bank?  Is there a 1st and 2nd combo?  How far away is the auction date?

It looks like you said the home is currently on the market...have they received any offers lower than $397.5K that have been rejected by the homeowner?  If so, negotiate a contract at your target price and then contact anybody who made a lowball offer and ask them if they are still interested...could be a more effective way to achieve that simultaneous close.

Most investors look to make at least 20% on their investment...like you calculate to make here.  However, with the numbers you have presented for a potential investor..if you figure in a 6% real estate commission on $447.5K, that doesn't seem to be possible if they purchase at $346.2k.

You may want to consider negotiating down even more...depending on what is owed...and try selling to somebody who wants to live in the home...like a first time home buyer.

Any other thoughts?

Kathy Utiss · Answer

In the years I've been in the business I don't know to many people who like to put money up front like that. It seems to me like if your going to do something like this that you may as well do it for yourself.

Otherwise get an investor do the assignment and let them worry about it. But before this make sure you get this type of short negotiated other wise there's no reason to put any contract in place to buy anything.

The type of write off your asking for is huge ($176k) and you have to document everything to make it look like your offer is the best their going to get in order to accept and move  the process thru.

This is done usually by explaining in detail your holding costs, pictures and especially the repairs. For labor and materials. The more you accentuate the pictures and repairs the better off you'll be. Is it impossible? NO but somewhat unlikely. I feel they'd think their being taken for a ride.

They'd probably hold for a while. But one doesn't know if one doesn't ask.
Just if you ask be as precise as possible. You want the presentation to SCREAM this is the best presentation they'll get for this property.

Best of luck,

Kathy