Alright BPers, what would you do with this lead?
I started a Facebook campaign just last night and got a phone call about a property in an area where we are looking at doing rehabs. The owner is living there currently and is ready to move as soon as possible, for whatever reason. The owner told me that the house needed a bit of work including one of the bathrooms that he started to repair but stopped because he did not want to take on the task to repair the house anymore.
He owes "Somewhere over $60,000" and from looking at local listings and recently sold homes on zillow, I'd say the top price on a nice rehab is $90-95k, if that. Assuming rehab costs around $20k, I'm pretty confident that it's not gonna work for a flip.
I'm going to shoot it to my realtor to get some solid comps but in the meantime, looking to get some opinions. I scheduled a walkthrough with the owner a few days from now but I don't want to waste his time. If my numbers are right, do I cancel the walkthrough and just tell him it won't work or do I go take a look and decide to push the lead to someone else? It seems like the only person to send him to would be my realtor to list the house or go the short sell route if he is in financial trouble. Thoughts?
(Disclaimer: I have not attempted a flip)
I tend to agree that those numbers won't work for a flip. Especially once you start considering the costs involved on the other end of the transaction (i.e. 6% for realtor fees + closing costs if you get stuck with them)
As far as doing a walk through, unless you expect to find less required repairs and upgrades than have been disclosed, it's probably not going to improve your opinion of the deal.
Do you have a number that will work for a purchase price? The seller may be willing to take a loss to avoid a short sale situation or damaging credit reports
Depending on the details and market, you might be able to turn it into a pretty nice rental that you can pick up at a discount.
What rent will the market support for the property?
Have you considered a buy and hold/cashflow strategy?
First off, GREAT JOB with your marketing and getting that lead! I want to also disclose that I specialize in house flipping and we do a lot of off market marketing and come across situations such as this more often than not.
Based solely on the numbers that you provided, this will probably not work for a flip. However, maybe there are things you are missing, I do not know your experience level but there have been many times (once last week on a house we just closed on today) that I have been sent a property from a wholesaler who has their numbers wrong and that there is actually a lot more opportunity than they originally thought (rehab is less cost then they thought, resale numbers are bad comps and house can sell for more, homeowner could still be negotiated, etc).
With all of that said, I would take the appointment for a few reasons.
1. confirm the rehab in person
2. build rapport with the home owner, find out their real story and numbers, many times they don't open up to you on first phone call, it can take an in person meeting to find out the real details
3. maybe there is hidden value in the property (a second buildable lot, a unfinished basement, a really large attic that can be converted into a 1/2 story, who knows).
4. If you learn to do subject-to's this may be a candidate. Good to meet in person to help negotiate later. If you don't know about those, read some blogs on BP and find someone local who does know them, then sell the lead to them or partner and ask them to show you how to do it.
5. You can also sell the lead to a shortsale negotiator if that is the route. I do this regularly, I write the offer I want on the property, give it to them and also have them pay a marketing fee for the lead since we are a lead gen company, and then put them to work on getting the deal closed (hopefully within 3 months, but sometimes it takes longer...)
6. Possible rental opp, you can wholesale to a landlord if that's not for you and if numbers fit
7. Learning experience....! You can learn a ton the more properties you walk and the more you speak with potential sellers.
Hope this helps and let us know how it goes after the appointment!
Tarl Yarber, Fixated Real Estate LLC | Podcast Guest on Show #189
That's hard to answer without knowing the scope of work involved and the costs associated with that, in other words your cost of repair.
At over 60k payoff amount and comps in the 90s it doesn't sound like much of a deal unless the house needs very little to no work, in which case you do have options to monetize this lead if the seller's price expectations are in line.
@Tarl Yarber Great insight on this post. As a newbie to the RE investing world I really appreciate the openness of everyone. Its amazing!
I haven't flipped a house yet, but currently making offers and hoping to close something shortly. Thanks for the ideas in the post.
@Tarl Yarber thanks for the detailed response! I'll be sure to update the thread on what came out of the meeting.
The owner called my marketing number three times yesterday before I was able to get back with him and he insisted that I come take a look at the property as soon as posssible. So, he seems pretty motivated but again, I do not yet know why.
@Samuel DeMass as you know of the area here in Clovis, I'm personally not looking to hold here but it has crossed my mind as a possibility. The rents would be right around $750 to $800. Again, doesn't seem like there is enough juice that's worth the squeeze at the current numbers but we'll see what I find out on Here in a few days.
So I met with the guy a few times. The first time I walked through the house and it is not too bad. The carpet would need replaced, some wall paneling replaced with sheetrock, and one of the bathrooms needs redone...it is actually already stripped down and was in the process of being fixed by the owner. The backyard needs quite a bit of landscaping as well.
The motivation was that the owner is looking to move across town into a better area and apparently was in discussion with a realtor who needed a decision fast. The only way they could buy the new home was to sell the current one.
The second time I checked out the house, I had an investor friend take a look with me. he thought it was a nice place with a fair market value of around $50,000. I think that the house could potentially sell for around $80-85k once fixed up with around $25k in rehab costs.
I told the owner that I couldn't offer enough to make it work for what I'm looking for but the owner is insisting I let him know what I could offer. I'm thinking about just telling him that I would be able to offer $35K, but I'm guessing his motivation is not enough to accept close to that! I'll update if I decide to throw this "lowball" offer out.
how did this one turn out? What is the address of the old man's house?
I really do not see how the owner could ever accept $35K when he owes over $60K you could not get title from the mortgage company unless they get paid off so you would need to talk with them and attempt to get them to discount the note I would think. I do not think the decision to accept a short sale would belong to the owner but to the mortgage holder.
My opinion is that this deal will just not work. There is the possibility other things can be thought of to do but none that will not be very involved if they would even be possible and if your intentions are to do a flip forgot about it.
Get someone to pay you to take the house and loan off of their hands? Possible but I would not count on it. If the owner has money he could just pay to have the house fixed up and retail it themselves and come out clean from under the existing loan.
These are just my thoughts.
If he offered 35, he probably ticked off the owner, LOL.
Such situations, good will is worth more to me than 50+25+10%-closings costs, might get 1% in my pocket after paying the Realtor he is working with. So, no.
I'd make another appointment and take my Realtor along, I'd bird-dog this for my Realtor! I can back out showing it's not worth my risk, time, management or labor and the best solution to solve the owner's problem is talking to my successful Realtor! Your Realtor may pick up a listing, if not, you gave him an opportunity to do so. That's team work and he will owe you! You help feed others they will help feed you, that can be worth more than squeezing out a couple grand with headaches.
What a good Realtor can do is have the property brought up to a marketable condition, fix the bath and pay the costs at settlement.
If rents are low, the wholesale angle is out as well, I'd rather give the lead away on this than go there.
You solve the owner's problem, he remembers you, he may be moving again within 7 years, he probably has friends and neighbors as well. Good will can be priceless so don't just walk away or give low ball offers that can't be accomplished, he's buying another house and must clear the mortgage, most owners don't have 25% equity so anything under 45 is probably a no go. Make them mad, they will also remember you! And this guy is staying in town! :)
Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com
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