What to Offer

Question

I talked with a seller earlier today. He has a house in Renton, WA that is currently being rented out (lease goes for two more years). He wasn't sure about the value. He mentioned that zillow had it at $333k and tax assessed had it at $302k. I tried to have him provide a number, but he wouldn't. Said for me to come up with an offer. I've looked at the comps and the current as-is value would be around $320k. I'm probably looking to wholesale this to a landlord buyer.

Any ideas on what I should offer?

Thanks

Ian

Any ideas on what I should offer?

Thanks

Ian

Ned Carey · Answer

No landlord in their right mind would pay $320K for a property that rents for only $1700 a  month. I doubt a rehabber would pay $320K for a property worth $420k when  done.

I am sensing you do not know how to evaluate a deal or estimate what another investor might pay. Search for the 70% rule here. This is a quick crude guide to estimate what to offer an a rehab property. There are deal evaluators under the analyze tab above.

The fact there is a 2 year lease and it is rented so low relative to the value is a very bad think in my eyes. You are stuck with a non performing property for two years.

Joseph Ball · Answer

I see nothing to indicate the Owner is motivated. You sound motivated, but he doesn't.

Aaron Junck · Answer

Need more details to give an offer.

How much rental income ?

How much deferred maintenance and rehab is going to be needed to be done to value it at 320K?

Jeremy Tillotson · Answer

@Ian Smith just because you talk to a seller doesn't mean there's a deal to be made. If you will give me zillow value I will sell you every house I own, its not always accurate. Further any house I have seen (even the 500k houses need some form of work completed, just painting a house ranges around 1-2 dollars a sq foot. He wouldn't give you a price = not Motivated I want as much as I can get and I dont need to sell it because its rented. But sure if some suckers wants to pay more than it is worth I will sell. There are the 1% rules and 70% arv rules you should look into they are just rules, but pretty good to live by for beginners.

Dexter M. · Answer

@Ian Smith how did you go about finding your comps to bring you at 320k if you don't mind me asking?

Aaron Junck · Answer

Most on BP talk about the 2% rule meaning if you buy a 100k property it should gross 2k a month in rental income.

For me this is a very hard find in my market and by the sounds of it in a lot of markets. Its not mandatory, however a guideline. More realistic is a 1-1.25% around here. So for that same 100k property my current market would return around 1000-1250 a month.

Most started out saying that if you can get 1% that you should be able to make the numbers work.

In your scenario your pushing .5% which will be even hard to pay debt service alone. Is this a class A property? I have seen properties around here that are 300-400k that rent for 2500 a month. I personally wouldn't do that unless I had a property and had no other options next to losing the property.

Ian Smith · Answer

I appreciate the input. I know other cities throughout the country offer much better rental returns. I think that my area is different. There is limited inventory and good appreciation.  I would be courious to find out what local wholesalers and/or landlord are purchasing/selling rentals at.

Travis Sperr · Answer

How much in repairs to hit $410k?

A landlord will still want to get a good price on it, likely better than fair market - unless there is an opportunity for a large value increase via repairing the property.

Without intimately knowing your market - $320k for a proper that rents for $1,700 a month is not a deal I would do.

Further - if you are paying fair market, there isn't any room to get paid as the wholesaler, unless limited repairs offer a large value increase.

Ian Smith · Answer

Curent "as-is" value would probably be around the $320k. ARV value would be around $410k. Since there are current renters for another 2 years I was thinking that this would be a fit for a landlord buyer.

It's currently being rented out for $1700/month.

Travis Sperr · Answer

@Ian Smith You mentioned you looked at comps - what do you see as the value? If you are going to wholesale it you will want to offer a price that leaves some meat on the bone for your wholesale buyer as well as room for you to get paid.

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