I'd like to hear some opinions on a deal I am negotiating. I am looking to wholesale a 3Br/1 occupied row home bringing in $650 a month. The owner is a tired landlord that would like to make $70k on the deal.
The most recent cash deals for a quarter mile radius are $50k, $53k and $95k. The first two were both 2br shells and the 3rd was a completely remodeled duplex. I will be driving by later to get a feel for the block.
With those facts in mind, what would your max offer be to the seller?
P.S. I started the conversation saying I'd buy in that area from $40k-80k depending on condition of the property, that's when he told me he's looking for about $70k.
You looking at about $66,500 using a 70% LTV of the $95k ARV this is not deducting repairs and assignment fees.
You will be cutting his asking price drastically after factoring in repairs and assignment fees. Personally this would only be a deal if you were actually rehabbing the property yourself.
Also you have to keep in mind, how far apart are your comps are you in a rental area or a home owner area. On might pay more for a duplex because of the cash flow opportunities on the 2 units.
So the property is already occupied that means you need to find a cash buyer that's looking for a turn-key property with tenant already in place. Unless you plan on evicting the tenant... Are you going to wholesale it as a rental or flip? That will make a difference in how you market the property and pricing as well. Is there room to raise the rent? Check area rental comps. As a rental it may require $10K in upgrades and it can possibly be a lease/option deal, where you get paid twice! Is there a mortgage on the property? Is there potential seller financing? More information is needed here. Let us know when you get in and see the place and find out if there are any major renovations needed and if there's a mortgage (if so how many and the amounts) renovation costs etc...for a better analysis.
MAO(maximum allowed offer) = ARV minus Rehab Costs + wholesaler's fee
$70k for a property renting for $650 sounds a bit too high, assuming $650/month is market rent. But I have a feeling that the tenant is paying below market rent for a 3BR house.
It sounds like the seller is looking to get retail (i.e. market) value for this property; that being said, why are you only researching recent cash sales? There may be other sales that indicate a higher ARV. It would need to be in the $130k-$140k range for this to make sense.
I like @Mary B. 's suggestions of asking if seller financing or lease option are possible.
Thank you all for your input, sorry for the late response. The seller went cold on me after I made this post and never answered my calls again. I will probably call him back in another week or so to see if he would still consider selling. I will keep all your suggestions in mind for this deal or future deals. Thanks again!
@Brandon Eleazer I use the cash comps to get an idea what the investors are paying in that area for properties.
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