So I found a 2-Family property located in a neighborhood that my investors buy property. The property has been listed on the mls for less than 1day and is a distressed property in need of rehab that is owned by an elderly man and is NOT an REO or short sale but is located in an area with plenty of short sales. Here is my problem, the owner states that he will be responsible for removing the underground oil tank. The agent told me to get as close to the $95,000 list price as possible as the owner will need money to remove the tank. My estimated repairs are approximately $25,000 -$ 30,000 however, my comps in the neighborhood range from $165,000 - $260,000 depending on the extend of renovations and other typical appraisal adjustments. Most of the comps are around $185,000 but a very few that have extensive rehab in the area closed at $260,000. These comps are similar in size and appeal. So what do I do when determining ARV? Use conservative comp @ $185,000 or the few lingering comps @ $260,000. Similar distressed comps in this area range from $60,000 - $120,000 depending on extent of repairs and type of sale (Reo,short,etc). What the heck do I do now as I am going to look at the property tomorrow and need to make an appropriate offer? What should my ARV formula reflect? This could be my first potential wholesale deal and I pray that it works out. Thanks BP
@Angelo Mart Seems like a good deal using $185K conservative comps with $30K rehab costs and buy at $95K. I'd lock it up.. try to wholesale it out at $100-$105K.
I agree with Gary. From the way it sounds is the worst that could happen is you under estimate ARV and your investor makes a killing. In this case your buyer will be eager to buy from you in the future. If you can work with the listing price then go for it, your job is to help distressed sellers and let someone else pay you for doing it. Win-win-win.
@Account Closed thanks! Since it's my first deal and I'm not having the listing agent represent me also as my buyers agent (she will get paid on both side) how do I even submit the offer since it's a wholesale. Should I have my attorney state clauses in the contract before we send it to seller?
@Angelo Mart , standard purchase agreement, but you need it to say and/or assigns after your name so that you can assign the contract. Also want to make sure you have an inspection period of 10-15 days, preferably business days. That's the time you have to find an end buyer. You will have to back out of the contract before then or you lose your earnest should you not find a buyer. Set the COE out about 30 days. Put the least amount of earnest down possible. I would should for $25 and justify based on this being an as-is cash purchase.
@Account Closed Thanks for the help. I looked at the property today and She said for me to come to her office tomorrow to send offer in. I told her it would be a cash offer, she then proceeded to tell me that I need to put a $1,000 earnest deposit and show proof of funds. I don't understand why she would say that is this is NOT an REO or Short sale. Also, should I start calling investors even though I don't have contract locked in yet?
@Angelo Mart This is a tough one for a first wholesale deal since you don't have a relationship with a solid cash buyer yet. A solid cash buyer could put up the $1K earnest in escrow via assignment earnest to cover your earnest with the seller. Further, he could provide POF for you. The agent is there to help the seller. They are doing the right things by asking for POF and larger earnest. But, these things are all negotiable. Personally, I have not purchase properties off the MLS nor from a seller with an agent. So these things I've not had to deal with directly. You could negotiate the earnest down to say $100 because it's a cash, as-is transaction. Tell them this is your policy with such transactions, and should be anyways. You would need to have an inspection period of no less than 10 business days for your funding partner to take a peak and inspect the property.. Again, this is your company policy. During this time you work your arse off to find the buyer or back out of the contract with-in the inspection period and get your earnest back. For POF, you could use a transnational funding source provide this for you, or someone you know who has that amount of cash in their back account write a POF for you (it does not obligate them to fund the deal, just that they're willing to). If these things are not possible, you may have to pass on this one.. Personally, I market directly for motivated sellers off the MLS. These issues then become mute for the most part. Yes, spend time now looking for and marketing for cash buyers.. Tell them you'rr actively marketing for discount deals from motivated sellers and need cash buyers who can make quick decisions.
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