Very Nervous Newbie - First Potential Deal

6 Replies

A relative told me about a friend with a SF home to sell.  It is a 3-2-2/just under 1900 sq ft currently listed at $280k (down from $300k).  Realtor initially wanted to list at $325k if owner would put in $10k in updates but owner did not want to do that. Owner has moved out of state and is anxious to sell.  She has indicated she would be agreeable to sell for $250k.

Home is in good shape with no big ticket repairs needed. It looks great from the outside although interior is a bit dated. Biggest issue is the owner and her late husband were heavy smokers so that must be mitigated and I think this is why the home has not sold to date. I have seen remedies ranging from setting out bowls of vinegar to complete gut.  I’m hoping answer is somewhere in the middle.  Everything else is cosmetic. 

Assuming ARV might be closer to $315k and updates and smoke mitigation could be done for $15-20k (also assuming realtor has not factored smoke clean up in $10k), is this a deal at $250k? If so, I would like to make an offer with $1000 down and ask for owner financing and either no payments or interest only payments until home could be renovated and sold (maybe 90 days?) If she is okay with this, it would save hard money costs. I can use my own money for renovations. What interest rate should I offer if she accepts owner financing? Should I offer less and see if there is a counter offer? Is there another way to structure this to make it a better deal?

I don't know what to expect to clean up smoke (time or cost) or for closing costs and commissions when I sell. ARV and repair estimates need to be confirmed.

I’m suffering from newbie analysis paralysis but wanting to push through it. Any advice is appreciated.

@Pam Tucker you left out a key piece of information. Are you going to flip this or keep it as a rental.

For a flip this is not a deal at $250.  Fifteen percent of a flip goes to soft costs; like closing X 2, holding costs, financing costs, sales costs etc. The 70% rules says this you should pay no more than $220 MINUS the repairs.

You need to pay a lot less to make this a deal. 

Ned: Thank you for your reply - the soft cost information is very helpful as I did not know what to allow for that.  I was looking to flip and was hoping avoiding hard money costs (if she agreed to owner financing) would make enough room to give this a go.  I’ll keep looking. That first deal is out there somewhere. :-)

Question about the soft costs:  does the 15% include realtor commission when I sell?

@Pam Tucker   If this property is off market you're in great situation. The owners have a problem with the property. It needs lets be honest $10-15K worth of work. "Agreeable to sell at $250K" tells me they can go lower for right person. Be that person. Show them real quotes from contractors and explain what it takes to sell at that price. I would offer $225K for that property. 

They won't forget you because you're honest and wanted to solve there problem. 

Doesn't sound like its a deal at that price. Smoke and tar remediation can be tricky as it gets everywhere including air ducts and even inside ceiling fans. Whether its a flip or rental, this should be fixed right, up front. Go in with copious amount of Kills on floor and walls and fresh new paint in order to increase desirability and maximize returns. Good luck!

@Pam Tucker If it hits the market the chances of landing a good deal drop significantly. Winter is a great time to buy and terrible time to sell which is in your favor.