Best way to acquire this property?

Question

I have a potential deal for a SFR, 3 BR 1.5 bath. 4 floors believe it or not. Potential seller is an absentee owner that contacted me from a direct mail piece I sent and he is definitely motivated. ARV shows approx. $175-180k. Needs about $45k rehab or so. Let's assume the seller won't take my cash offer of an MAO of $70k to wholesale. Any other options? I'm looking into seller financing or lease options but haven't done one before and don't want to dive head first without knowing what I'm doing. Rent in area is about $1600 month; and not entirely sure if there is an existing mortgage or not. Just looking to expand my thinking so I don't leave a potential deal on the table. Thanks for any advice! Happy holidays!

Account Closed · Answer

you have to do the research to find out what mortgages he/she owes on the property. You should be able to get access to that info by going to your counties recorders of deeds and search by the owners name, then looking through the documents. What do you plan to do with the property once you get it?

Paul Amegatcher · Answer

Where is the repair costs in your formula?  This may work for your area but I cannot believe that you do no budget for repairs.  The 70% rule is simple enough.  (70% of ARV) - Repairs - Wholesale Fee = Max offer.  There is nothing complicated about that.  Using the above stated numbers (175K * .7) - 45K(repairs) - 10K(wholesale Fee) = 67.5K would be the Max Offer.

Account Closed · Answer

The formula I use for wholesaling doesn't take repairs into account because when using the lowest comps we figure those comps represent houses that needed work and we're offering 80% of the average.secondly we don't just assign contracts to flippers some of our end buyers are owner occupants, landlords or even  people buying for tax reasons. We don't try to wear too many hats, buyers can request a estimate report but we've found that buyers are going to send their guys to do a repair estimate when it's all said and done anyways, get 10 buyers in a room and you may get 10 different answers on repair costs, our formula keeps us focused on what we do best which is create an offer that meets all of the sellers needs.

Account Closed · Answer

Paul, we do business a little differently than "Wholesalers" do, being that we don't just assign contracts to fix and flippers (we actually close then resell) we have a different system in place. And when I mentioned not making it complicated I wasn't talking about the 70% rule, I was speaking on using seller financing or as a beginner. Instead of trying to poke holes in what others are saying first try to understand.

Account Closed · Answer

I wouldn't over complicate things if you're just starting, sounds like the real issue is the formula you're using to determine your offer...Instead of the 65-70% rule(s) try this: 1. Get the sold price on 3 of the lowest comps (6-12 months out) 2. Add the 3 prices and get the average of those prices 3. Multiply that number by 80% and there goes your maximum allowable offer 4. Assign contract for 5,000-$13,000 above contracted price. Disclaimer: This is what I use in my market yours might be different.

Dave McEvoy · Answer

OK so can't take my cash offer but is asking about a lease option. It's not in the best area, a lot of renters. House needs some work. How else can I go about this? His mortgage is still more than my cash offer would be. Could I do a sub2? If so how would I take into consideration the work it needs? Could I wholetail it? Again just trying to expand my knowledge and would hate to lose a deal if the seller is motivated.

Dave McEvoy · Answer

@Jackie Lange

yes that is what I'm looking to possibly do if I can do better than a wholesale deal. Seller financing seems interesting but the end game it what I'm unsure about. Do I sell it to an end buyer with owner financing as well? Do a lease option? I'm waiting to hear if there is an existing mortgage still. Thanks for the advice everyone, please keep it coming and keep everyone updated on the progress.

I can see the benefits of the 70% rule and lowest comps average means of making an offer; I think Sean Terry does a combo actually. My thinking was would there be another way of acquiring this house if he didn't take the wholesale offer? Could I do owner financing, assuming it's owned free and clear, or possibly lease options?? Just trying to expand my horizons and no be a one trick pony. Again thanks for the advice everyone! greatly appreciated!

Dave McEvoy · Answer

@jackie Lange yes that is what I'm looking to possibly do if I can do better than a wholesale deal. Seller financing seems interesting but the end game it what I'm unsure about. Do I sell it to an end buyer with owner financing as well? Do a lease option? I'm waiting to hear if there is an existing mortgage still. Thanks for the advice everyone, please keep it coming and keep everyone updated on the progress.

Jackie Lange · Answer

Don't make an offer!  Instead, ask the seller what's the least they would take if they got cash for their house within 30 days.  You may be surprised that they would take less than you were planning to offer.

If their price is too high, simply ask if that is the best they can do.  Remind then that they can sell the house "as is" and you could offer to pay all closing costs to help get the price down.  If you tell them they can take what they want but leave the rest in the house that will usually close the deal.

Simultaneously, you need to be building a buyer's list of potential buyers.  It will sell much faster if you already have 5 - 10 rehabbers on your buyer list.

Instead of just doing a wholesale flip, there are other ways you could make about 20-30% more.

Paul Amegatcher · Answer

I would make my initial offer at $60K.  You can always increase your offer if the seller rejects the initial offer. Is the seller open to seller financing or are you looking to have all the bases covered.