Advice needed on potential deal
Hi BP community, I need some advice on what approach I should take in order to get this property under contract. I recently found a home for sale by owner, it's ARV is around $200,000-$225,000. The seller was renting it out previously and the renters completely destroyed the home. The home needs at LEAST $40,000 in repairs and the seller is asking for $180,000. When I asked him about his pricing, he stated he needs $178,000 to break even and cover his mortgage. He wants out of the home and landlord situation so he is motivated. The home has great potential, but tons of work! How should I go about presenting the offer and getting it under contract?
Thank you
Why it looks like a bad deal.
I agree with Stephen, there is no money to be made on this property by your own estimation! The seller needs to come to terms that it isn't worth what he wants, he has to take a haircut to sell it. Or find a miracle buyer.
Wouldn't I still want to make my wholesale offer though, what would I have to lose? He could reconsider and accept that he's asking too high and take my offer.
With ARV at 200K, and rehab at 40K, your MAO will be:
MAO=70% ARV- Rehab costs = 140K-40K = 100K
At 178K, you are at 18K loss, and no spread for the flipper.
Why would you do this? Are we missing something here?
This could be potential for short sale, though.
Make him the offer contingent to inspection, and then renegotiate. If he still doesn't come down, ask if he is willing to seller finance at least some of it. If it's a desirable location, after repairs, you may have a deal. Most walk because they cannot see the opportunity. Good luck!
You might want to try to arrange a short sale. This could be a win for everyone involved. Then you could pick it up for the price you should.
I totally agree with Chris Boyd.
Thank you guys.
@Chris Boyd could you a little in how getting seller financing for part of the amount could make this a deal? Newbie here that would like to better understand financing options. Thanks!
@Kevin Phu without teaching options, I will remind you of this. Real Estate is a agreement between two parties. Seller financing is great because in the right circumstance, it gives you leverage to move a property and make money when margins are small. If I was selling you a bottle of water for $5, but you couldn't afford it, and you were thirsty, you would find a way. So I can afford 3.50. You ask if I'll seller finance the remaining 1.50 over a period of time. Now to make a profit, I'll look to sell that bottle for $6 (sub lease) with $4 up front and finance the remaining $2. With property, if the leasee cannot make good on getting financing within a certain period, the property reverts back to the owner, and you can enter another agreement with someone else if you choose. Not sure if the water was a good example, but I want you to understand the thought process more than anything. Hope that helps. Have a good weekend!