Trying to analyze and assess vacation home

6 Replies

Good morning

This is my very first post and I'm really excited about this forum. A friend recommended it to me and I've just been reading ever since.

My wife and I recently found a lake house that has a great view of the lake, bones, and location. However, the home has been absolutely destroyed. My wife didn't even want to go in, carpets were stained with what looks like urine all throughout the house. It wreaked and has been sitting empty since Feb 2014.

Here are my main questions? (please forgive me if they've already been answered here)

How do I properly value this home to present a reasonable offer?

It will need:

- New floors throughout the house

- New roof

- New deck

- Paint, possibly even replacing dry wall (there are stained yellow patches throughout the home)

- The basement to be finished

- Brand New Kitchen

- Brand new bathrooms

I do not know the first thing about carpentry so I would have to find a reliable contractor but how do I find out the general cost for projects like those listed above in my area?

I remember reading about the 70% rule in the Ultimate Beginners Guide. Which says to figure out how much the home would be worth after repairs, then factor in repair costs, and offer 70% of that number.

Any advice, website articles would be very much appreciated. I really look forward to being a part of this community. Happy Friday!

Welcome, Marvin! 70% is a good rule of thumb, but is not set on stone. With a complete renovation as you are referencing, you will really help yourself by getting a professional bid to complete the work. In order to do this though, you are correct, you will need a starting figure to get it under contract. Take a look at comparable properties with a Realtor, check out what vacation homes are renting for, and try to determine a solid ARV of the home... based not only on resale value, but also consider rental income since it sounds like you might be holding on to this property. Make sure you put an Inspection contingency into the contract as you will be able to evaluate the property with a professional while it is in escrow, and potentially re-negotiate if the figures do not work out as you had planned.

Thanks for your insight and suggestions Collin. They are really helpful! We saw a couple other properties that were move in ready and they were only 20k more so we definitely have some negotiating to do.

Originally posted by @Marvin S. :

Good morning

How do I properly value this home to present a reasonable offer?

1. If you have access to a realtor and/or the MLS then get a copy of the sold comparables near the subject property. If you don't have access to a realtor or the MLS then go to redfin.com. Type in the property address then click on "price home". You'll then be able to create your own sold comparables. You'll need a minimum of 3 sold comparables but the more you include the better. (Do a search on BP for what comparables to use) The sold comparables will provide you w/ an estimate of what you may be able to sell the property for once complete.

2.  Now that you know the potential costs to sell the property you'll need to deduct realtor costs (if you're going to use a realtor);  renovation costs;  potential closing costs to sell; closing costs to purchase;  costs to hold the property...  After all of those deduction then the "reasonable offer" can be determined by deducting what ever you consider to be "reasonable profits"   

The 65 or 70% of the ARV is a good rule of thumb but @ the end of the day what's reasonable is a function of your business plan.

If your plan is to hold the property, in lieu of a flip, then a reasonable offer may be determined by having a target Return on Investment (%) objective.  With that objective you can mathematically work your way back to what you consider a "reasonable offer"  i.e. how much Net income (Rent minus expenses) will the property produce versus how much cash you put in to the deal.  

I tell you something out of ordinary! Take a lot of pictures and post them on line with detail of size and everything you can say. Ask for an estimate from people. Most people from the pictures can tell you.

Also if you do a property inspection that will give you a good idea of what is urgent and necessary. you can make a list of that and get 2 or 3 bids from contractors. 

Crystal

Thank you very much for your detailed response! =)

1. I'm compiling a list of comparables in google docs right now and still need to do a search of the BP forum for comparables to use.

2. We definitely have a lot of learning to do in regards to figuring out these costs but thank you very much for pointing them out. Otherwise I would have overlooked some of them.

You make a great point regarding the 70% rule of thumb. We will need to consider what we are comfortable accepting on our first deal. Thank you again for your time and advice!

Morry

That is a FANTASTIC idea and that's exactly what we'll do. Thank you brother.