Deal ANALYSIS in Philadelphia - Finding ARV without MLS

10 Replies

Hello BiggerPockets Family,

This is my first time posting on the forums but would love to hear any advice at all regarding this deal analysis.

Since Im new to BP and real estate investing, I'll give a quick background about myself and the deal in question...

I currently reside in Marietta, GA. I'm a licensed Agent here in GA but over the last 60 days my fiance and I have been totally committed to succeeding together as real estate investors. We have done some marketing and networking in the Atlanta area but have not locked in our first deal as of yet.

My mother, who still lives in Philadelphia, informed me of 3 properties that have recently become vacant on her street. She knows the owners and the history of the homes very well, and would like to help me to wholesale the properties virtually. But before she sits down with the owners to get the properties under contract, she wants re assurance that a buyer will actually be willing to buy the homes, and also at what price.

Since I don't have MLS access for PA, I used Redfin, findcompsnow, and homesnap, to get a feel for home prices. Boy was I surprises that homes are going for so cheap in the area. I was born and raised on the street and had no idea about real estate prices in my neighborhood.

It seems that the ARV for homes in the area are about 60k. And Investors are buying distressed properties for 10-20k. There aren't many families looking to buy a home in this area, so the homes would probably be best for a "buy and hold" investor.

I don't have access to inside pictures for most comps to adjust for condition, and for some Im not able to tell if they are cash sales or retail so Im somewhat limited when it comes down to coming up with a solid number.

I also called 5 wholesalers whose ads I found on craigslist. I posed as the owner of one of the homes just to gauge interest and get a round about offer from other wholesalers. Spoke with 2 who seemed pretty interested after I threw out an offer of 20k, and they will be calling me back tomorrow after they run more numbers.

I wanted to make sure I did some due diligence before asking for help, and wanted to give you guys as much background as possible to help me come up with a MAO and sale price.

Here is the breakdown of the 3 homes... They are all on the 1500 block of South Wilton St 19143 in Southwest Philadelphia. 

15XX South Wilton St Philadelphia PA 19143

Townhome

3 Bed / 1 Bath

Sq/ft 1080

Condition: Currently vacant for a little over 1 year, windows boarded, has fire damage in one bedroom but the rest of the house is fine cosmetic repairs.

No Liens

15XX South Wilton St Philadelphia PA 19143

Townhome

3 Bed / 1 Bath

Sq/ft 1080

Condition: Currently vacant for under 1 year, was inherited and occupied by daughter after Mom died but now the daughter has moved away. Home hasn't been update in about 15 years. No structural damages.

No Liens

15XX South Wilton St Philadelphia, PA 19143

Townhome

3 Bed / 1 Bath

Sq/ft 1080

Condition: Currently vacant for about a year. Was owned by a sweet old lady. She moved out and now lives with her daughter who takes care of her. Needs updating.

No Liens

Any help or advice is greatly appreciated.

Ok Tracey

Let me help you from the other side of the state. How about you have your mother use an option contract and market the rights to that contract. In PA we release our rights to the contract and get paid a "release fee" on the HUD 1.

Tell you mother to be honest about her intentions with your former neighbor's homes, and explain to them that she will work hard to get them their asking price, followed by the question "what is the least you will take for the property" 

do it that way and the MAO is irrelevant. You cant go wrong, if she cant find a buyer then she doesnt have to close on the deal.

Since you mother has been honest with the sellers, then there should be no hard feelings if she cant find a buyer at their best price. 

Best of all, there are buyers for Philly, she should be able to do a few deals and maybe even launch herself into a new career.

To your success

Josh

PS feel free to connect with me on BP

Thanks so much for your help Josh,

I had no idea about option contracts. I just looked it up and it will be very useful. There is definitely still investor activity in that area. I'm thinking about writing yellow letters to recent cash buyers who have brought homes in that area within the last 3 months.

Honesty is definitely key and we will be upfront with them especially since she has a personal relationship with them.

Thanks again for your advice.

@Josh Caldwell

Hi Josh, I'm new to investing myself and very interested in learning more about lease options, especially assigning back to the seller as you mention above. (I realize you can assign directly to the buyer but for HUD-1 purposes, I prefer to show my fee coming from the seller.) Can you recommend a good source for getting contracts? (Just looking for templates that I can take to my attorney to modify rather than creating from scratch.)

Thanks!

Matt

@Matt M. ,

To Make the @ work do the following:

Hold down the shift key and type the following: @?

Look below this Window, and you will see a list of list of names of people who have posted in this thread.

Click on the name of the person that you want notified via an email that you responded to them.

If you are a Colleague with anyone that has not posted in this thread, and you want them to see your post, hold down the shift key, and type the @ and the first 4 letters of the first or last name.

Look below this Window, and click on your Colleague's name.

They will be notified via an email about your post in this thread.

Raymond

@Matt M.

 The contract that I used was created from scratch by my attorney and at least two national gurus use it in their course.  So you can go the guru route to get a decent contract.

It would be a much better idea to go to your local REIA club or meetup group and network with a local investor to get your contracts. That way you start with a contract the should work in your state.

You are wise to have your attorney look it over.  Dont be surprised if your attorney wants to change something.  They dont get paid unless they change something. 

The important part about having your attorney look your contract over is that if things go badly and you gey sued, your attorney needs to be able to defend your documents and the way that the deal was closed.  

We all talk in generalized technique, but you need a good real estate attorney on your side to make sure that you comply with the ever changing laws or your area. 

To find a good RE attorney, you can go to your local REIA club, or you can look up one of the lawyer rating services like super lawyer or lawyers.com both of these pages offer you info of peer reviews by other lawyers. I like lawyers.com better because there is less room for bias in the way that they rate lawyers. I might need to start a new post on how to find a laywer.

I hope that helps

Josh

@Josh Caldwell

As mentioned above, I am interested in assigning LOs. I recently got a property under a lease and option contract with the seller and lined up a buyer to directly assign to. The buyer had no problem with an assignment fee of 3.5%-5% as long as it also counted toward their downpayment (if and when they exercised their option). However, both my attorney and lender said the problem with that approach is that the HUD-1 MUST show the down payment released to the seller (instead of me) in order for it to count as a down payment.

So, to avoid that problem, I'm now leaning toward entering into a sandwich lease option and then simply assigning back to the seller for a release fee (and having seller release me from our original contract).  Your thoughts as to which approach is better?  (And, if you can recommend a guru that has good contracts, it would probably be easier and cheaper for me to go that route (and have revised for my state) versus creating from scratch with an attorney.)

Thanks again.

Matt

Matt

not all attornies are created equal. The way that the deal is done, is that you register the option as if it were a lein, and you get paid on the HUD 1 to release your option. Even banks are ok with this approach. You get paid a release fee from your buyer.

Also, you need to raise your fee.  Even on cheap houses 5k is my minimum and generally I look for 10% or more on a deal. 

If there is a lender involved at the start, they you arent really in a lease option but a wholesale deal. A lease option, the buyer is making payments for a period of time, before there is a cash out. You can still do a release fee on a wholesale and show that on a HUD 1. In some states you may have to call this something else. The key is to find the attorney that a lot of investors use. That will be the guy who can keep you legal in your state.

to your success

Josh

@Josh Caldwell

In the example you just gave, can the buyer's release fee also count as a down payment (if and when the option is exercised)? If so, how will that be shown on the HUD-1?

I got a lender involved upfront b/c I wanted her to vet the prospective buyer and give me the thumbs up or down on whether the buyer can get financed in the next 12-36 months. Maybe I"m being naive but I feel if you do a good job screening your buyer candidates upfront, the buyer's likelihood of successfully exercising the option goes up dramatically.  And, if I'm going to do these, it's important to me that it's a win/win for everyone, including making sure I don't jeopardize the buyer's ability to count her release fee toward her downpayment.  (It's also a BIG selling point for the buyer, making the decision a no-brainer!)

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here