A motivated seller called me because he received one of my yellow letters in the mail. He has a 3bd/1.5 bath single family house in Eckington NE Washington, DC. I went to take a look at the property. Here is the numbers:
Repairs Estimate: $70,000+
My Offer Price: $223,000
Hard Money Loan: $292,500
(I plan to take out a hard money loan to cover purchase and repairs...65% LTV.)
Estimated Profit: $157,000 (before closing costs & other fees)
The seller thinks that my offer is too low. He is asking $400,000 which is obviously ridiculous considering how much work the house needs. I figure that the highest I can offer is $230,000. Another house on the next block with the same floorplan, size, style etc. was purchased for $226,000 and sold for $500,000 after repairs.
The seller said that he is calling other buyers for the best offer. Is my offer to low? Is my numbers correct? I can't imagine offering above $230,000.
Any help would be appreciated! Thanks!
Your exit strategy will determine exactly where you need to be with your numbers and what cash buyers are paying for properties in that neighborhood. Your offer do appear to accurate based on those numbers. You may have some flexibility in your offer if you can support more than one current $500k comp. That being said, Seller appears to be price searching and not at all motivated. You can't create motivation, your job is to find it.
Good point!! I don't think that he is motivated. My mom (my consultant..lol) said the same thing! I am going to let him think a little bit and give him one more call tomorrow. If he doesn't respond then I will move on. I refuse to go over $230k
I used 4 comps to calculate the ARV but I referenced the $500k comp as the basis for my offer price.
Also, I forgot to mention that he bought the house for $168,000 in 2008. I think my offer covers his mortgage and gives him extra money on the side considering the condition of the house.
There are other things to consider other than price. Find out what he wants to accomplish, not just the price. You may be able to put together something that will give him what he wants without raising your price too much. If the house is indeed worth more than you are offering, you may be able to wholesale it to other buyers who could possibly rehab it for less than you can.
@Barton Wallace Thanks for responding! My friend who is also an investor also suggested that I wholesale it instead of buying. Its better to get something than nothing.
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