When is a deal not a deal?

Question

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There is a house in the Pittsburgh area that I have been looking at.  It is priced around 10k, but the seller owes around $20k in taxes and the place needs at least that much in work. The comps in the area are between 46-80k.  I really was hoping this could be something I could make work...BUT I looked around for an investor/rehabber/flipper for awhile and found that they had either heard of it and weren't interested or they thought the numbers didn't add up.

Should I keep calm and carry on or does this mean this truly is a dud deal?

Thanks for any input!

(helpful is best, condescending lectures less welcome, but also good, but be gentle)

Michael D. · Answer

@Collin Cook , sounds like you are considering wholesaling this property. As a wholesaler, it's your job to find sweet deals that provide the investor with a solid return that accounts for time, money and risk. Put yourself in their shoes. Would you want to spend $50k on that place? I hope the answer is a resounding "NO!" If not, you need to spend more time educating yourself about what a good deal looks like. Also, the fact that you say "comps in the area are between $46k and $80k" scares me. That's the main thing that deals are predicated on, and the main reason why this is a loser. If you could tighten up your numbers a bit to honestly say "$17,500 to $19,000" in repairs based on bids I've seen for similar work, and ARV of $79k to $83k" then this would all look a lot better. Still not great though...

Michael

Judah Hoover · Answer

I would avoid anything under $75k in value. All you are going to do is be in areas of town you don't want to be in. Experienced pros can sometimes make a living selling city junk, but its best avoided.

If you look up what that house was worth 35 years ago I bet it was about the same thing, but a nicer home in the suburbs that was worth $50k 35 years ago is now worth $200k.

Dont mess with junk at any price.

Account Closed · Answer

I did not catch what neighborhood this property is in. One concern relates to the back taxes: if the owner has stopped paying taxes, it is likely that therre are additional liens against the property.

Fred T. · Answer

@Collin Cook please don't take this the wrong way, but as a Wholesaler you should know more about the deal, the area, the exit strategy, the construction costs, the ways to handle back taxes, etc. before you can control the property at a price that would make it interesting for an Investor to look at, still provide you a "reasonable" income and the Seller with some form of relief / satisfaction.

War zones are not always bad deals, especially for those Investors with a 7-10yr hold strategy because usually over time the neighborhoods change...perfect example is the Lawrenceville area. If you go into a community knowing that, then you know your target market and makes the Wholesaling easier to accomplish (no matter though you still have to do the work).

The key though is to understand the market, understand the present and future opportunities within that market, understand the deal itself and present a win win option to the Seller and sometimes that does require "work" as a Wholesaler.

So..here is the answer for you...IF YOU would not do the deal with your own money, then it may not be a deal worth pursuing.

$50,000/$46000 is a loss and $50000/$80000 in a class "C" neighborhood may also be a loss over time. Don't try to force a round ball into a square hole and keep emotions out of Business/ :)

Happy Wholesaling!/

Andy Ballester · Answer

I would contact a buyers agent, and have him contact the city and I'm sure they will settle on back taxes, it's not hard to call them yourself and ask for a settlement I would just let them know your interested in purchasing this property, I know the owner of this property says no liens, but you would need a title search to be 100%sure before you even make an offer don't take his word.

Rick C. · Answer

hi Collin.  As someone who buys fixers in that price range i would say its the numbers arent adding up.

If i hear ARV 46 to 80k, i assume 46.  From what you state above it sounds like it will take approx 50k total investment.  When i buy and fix i want to have my total investment lower than it would cost to just buy a nice place as a return on my time.

I would pass on that one, sometimes it just takes more than its worth.

Good luck finding your deal!

Andy Ballester · Answer

I also believe to know the place your talking about, it is a pretty big property and would be on higher-end of comps if done right, but the area is more of a rental area you may be sitting on it for some time, goor buy and hold for the right price but currently not at the right price it's almost there 10000 less and you will have a good deal

Collin Cook · Answer

I got the comps from the county website. He really wants the 10k to just get out of the property. Your assessment of war zone is correct.  Needs a lot of work. Could be very nice rental but it is in a city neighborhood It's not a bad street though.  I was working towards some what of a win/win, but have hit a wall.  Does the house have to be under contract in order to negotiate the taxes?

Andy Ballester · Answer

You can contact the city or district and they may negotiate to lower or settle remaining taxes say for 10 to 12 thou cash and offer seller 5 thousand and his headache goes away he is obviously in trouble and not able to afford and will be losing the house really shortly try to make this a win win situation for everyone

Michael Seeker · Answer

Seems like a lot of red flags.  1 is the taxes, is the seller going to pay those off at/before closing?  2 is the fact that it's a $10K property...that usually means war zone in the midwest, so not sure what it looks like in Pittsburgh.  Even if you've got comps I wouldn't expect the place to sell in any sort of short time-frame.  3 is the range on your ARV.  You really need to reign that in and be in a 5 or 10% range.  There's a huge difference between being worth 46K and 80K...where did you get those numbers from?

Low priced properties are generally good for cashflow but not great for retail sales.  Your best exit strategy might be to get a tenant and sell it as a turnkey rental.  Sales price would then be more dependent on the rent as you'd be selling to an investor

When is a deal not a deal?

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