Need advice on deal!

[shappee]

Got a house I'm looking at. Here are the stats:

Mortgage - 100,000
pymnt - 1200 (was renting it for 1500)
Tax Apprsal - 154,000
Seller Asking - 135,000
Comps ARV - 165,000

estimated repairs 10,000 (per seller, nds new roof and paint)
Seller asking for 1/2 of his 35,000 in equity down and the rest w/in 1 year with fixed interest rate.

What offers would you make?
What would you do for your exit strategy?
Would anyone be interested in buying this contract?

[WilliamGA]

Shappee,

Have you had a real conversation with this seller yet to determine what it is they need right now? I know you gave a list of what they want (35k in equity, half now, half later) but what is it that they will take?

Why do they need to sell? Financial problems? Divorce? Or "just thinking about selling"? You really need this information before you can formulate an offer that both worrks for them and gives you the best possible deal.

Let's say your assessment of market value is correct at 165k, and the seller's estimate of repairs at 10k is correct as well, I would normally pay no more than 110 to 115k for this property if I could take it sub2. This of course would leave no room to flip the contract so my exit would be either sell for cash or with seller financing. Obviously if I were going to flip, I would have to pay even less (my flip fee) for it.

Shappee, I just closed on a house this week where the seller called me wanting 85k. The house comps at 100k and needed about 5k in fix-up. There was a 45k NQA FHA on the house and the seller wanted their equity in cash. After some kitchen table discussion (literally) with the seller, I discovered she needed the cash from the house to settle a debt. She was divorced and didn't even have the cash to make next month's payment.

After our talk, she agreed to take 60k for the house. She got 15k in equity for her immediate financial need and she got debt relief. I got a house for 65 cents on the dollar after repairs. It is funny, when she first called, she was very firm on her asking price but upon meeting with her, she become more......errrr....flexible.  deal

As for what exit to use on your house, I would say that depends on how successful your negotiation with the seller is, as well as where you are in your investing career. The better deal you get, the more options that will open up for you.

Make an appointment with the seller, talk with them and discover their real need to sell. I promise you, once you know their true motivation, you will know what to offer. Ask questions. Your offer will be found in their answers.

Good luck in your negotiations.

[Admin]

Kristi,
With the numbers you mentioned, this certainly isn't a deal unless you have an approved retail buyer who wants this specific house.  Just the price plus repairs (assuming that's a good number) puts you above 80% and this doesn't include possible purchase costs, holding costs, and all the incidentals.

I agree with William.  Have a sit-down and figure out what's driving the 35k number.  They obviously have something in mind if they want half now.  It could be to pay off credit cards, pay for college, take a trip, or merely that 17.5k sounds like a nice number, etc.

And the seller wants interest on the remaining cash?  What's the seller's sophistication level?  What's YOUR estimate of repairs?  Like William suggested, WHY are they selling?  Do they have to or just want to?  Would it still rent for $1,500 per month?

There's some pretty big unknowns based on the info provided.  So, I wouldn't make any offers or even begin to know my potential exits without much more info.  By the way, I'd recommend having about four potential exits, not just one, unless you plan to just walk away if things don't go as planned.  Just some thoughts....

[shappee]

Thanks guys!

We've talked on the phone. The seller's motivation is that he recently had his renter move out. He is having some financial trouble in his business and doesn't have the money to do the repairs or he would do it himself. He needs to get out from under the house and get some money to help with his business. I am meeting with him at 7pm tonight. Any more insights with this info is welcome. I will definitely get more info tonight and post what I find out. Unless I feel totally comfortable I won't be making any offers tonight but agree to take the details to my "partners" and see what they think!

Thanks again!
Kristi Shappee
Home Solutions

[Dretke]

William,

I read with interest your post about the lady wanting 85K but settling for 65K with 15K equity.  I assume from your message that you did a sub2 on the property.  My question is, and forgive me if it's a dummy but how did she get her 15K?

I'm looking at sub2 for my first niche at least and trying to learn everything I can about it and the deals people make.

Shappee, forgive me for straying from your question.  I started to send a private message, but then I thought that this is the beginner's forum and  someone else may need to know what I was wondering about.  

Thanks guys.

[WilliamGA]

Dretke,

Actually, she took 60k for the house. There was a 45k FHA on it that I took sub2 and she got her 15k in equity from a private lender I have.

Actually, he funded 25k, enough for her, the fix-up, closing costs and holding costs. It is on a 35 month balloon which makes it possible for me to sell this one on a L/O or with seller financing on a short note.

Her 1st mgt pmt is 540 mo PITI and my pmt to my lender is 166 interest only 8%. This puts my total outlay at 700 per month while this house will bring 950-975 per month on a L/O.

Lots of different ways to go with this one.