Is this a good deal?

Question

So I contacted a FSBO today (she has not marketed the property at all except to put a sign in her yard). She is a widow that is motivated to sell in order to prevent having to keep up the property any longer. She says that she just can't do it any longer and just wants to move to a townhome. The house has no mortgage on it. The tax value is 158,000. She is currently asking 140,000 but says that she will consider all offers. The house needs no work according to her, but I have not given it a walkthrough as of yet. If she is indeed correct that the house needs no/minimal repairs, I was thinking of seeing if she would accept a 90-day option contract on it for 110,000-120,000 so that I will have time to line up a buyer and do a double closing.

This would be my first deal, so I would welcome your thoughts on this deal and any problems I may be setting myself up for.

Thanks.

This would be my first deal, so I would welcome your thoughts on this deal and any problems I may be setting myself up for.

Thanks.

Justin S. · Answer

Dennis-

When the homeowner owns the home free and clear, it gives you a lot of options.  I personnaly would present multiple offers to her and then let her chose the one that works best for her.

For example:

Option A:  Full Cash Offer at 65% of FMV, guarenteed10 day close.

Option B:  Full Cash Offer at 80% of FMV, Option to purchase in 45 day close.

Option C:  Owner financing at 90% FMV, Interest rate shall be 6%, 5 year ballon.

I just made these options up, but if you give her options she may be more open to that versus a single offer.

Think about your exit strategy with the property as well.  Good luck, it sounds like you could create a win-win situation.  Plus follow J Scott's advice, get proper comps before you do anything.

Jon Holdman · Answer

The other trick with "wholesaling" to a retail buyer is collecting your fee.  Sometimes conventional lenders will only use the price you pay and won't include your fee in the value or the loan.  So, the buyer would need to come up with the down payment, closing costs, and your fee.  It doesn't really matter what technique you use, though, the issue will crop up whether its an assignment fee, a option fee, or a double close.   I'd say either an option or assignment is easier, since you never show up on title, and the seller IS on title.

Just be sure your buyer is aware of the issue and makes it clear to the lender the fee needs to be included.  Somehow, lenders never have a problem with paying commissions to licensed agents, but do have problems with other fees.

Tony Tomasek · Answer

You can assign to any buyer with funds to close.

Make sure that you find a lawyer that can handle the closing properly before the closing date.  Many title companies don't seem to want to deal with assignments

J Scott · Answer

Dennis -

Don't rely on tax values to determine ARV.  Talk to a local agent who can run comps for you and can give you an idea of:

- Whether anything is selling in that area;

- If so, for what average price?

- What is average DOM?

- Are homes of this type (size, age, finishings, etc) selling?

Once you have a reasonable ARV and an idea of how long it will take you to sell, then go look at the house.

Determine for yourself if it needs work.  It may be perfectly functional, but might look like it was last remodeled in 1975.

Once you have your ARV and your rehab costs, THEN figure out what you can offer to make your desired profit.

George Roberts · Answer

Great responce, always be prepared for the worst.

Will Barnard · Answer

Justin - great post - vote for you. I like the three options you gave. Of course the specific amounts/terms can be adjusted accordingly.

Dennis Coley · Answer

Thanks, Tony.

Dennis Coley · Answer

Thanks again, guys.

Justin, great options.  Thanks.

Jon, I guess the reason I was thinking of the option contract was because I don't believe that this is a house that I could wholesale effectively to ensure my investor makes a decent profit.  In talking with this lady, it appears as if I'm only going to be able to get her low enough that I can only make a profit by retailing it.  Can I still do an assignment if I am retailing it?  I'm assuming nothing would prevent it, but I've only read about assignments in the wholesaling realm.

Thanks again.

Dennis Coley · Answer

Thanks a lot, J.  I really appreciate the advice.

In this situation, do you feel like the option contract is a good way to go if the numbers work out?

Jon Holdman · Answer

Why bother with an option?  Put it under contract.  Be sure the contract is assignable.  Find a buyer, assign the contract.

Is this a good deal?

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