Advice!! Will this work? - Posted by Kevin(OK)

Posted by Andrew Smith (Phila) on January 14, 1999 at 10:25:55:

Definetly not enough profit.

Advice!! Will this work? - Posted by Kevin(OK)

Posted by Kevin(OK) on January 14, 1999 at 09:43:31:

Out of town owner, sent him an offer to purchase for $61K cash and it sounds like he is going to take the offer. FMV is $73K. Once he says “yes” here is my plan: I will call up the current tenants and set up an appointment to “inspect the property (I made my offer prior to inspecting the property), and to duscuss a SPECIAL opportunity for them”. When I meet with them I will ask them if they want to buy the house from me for $73K. Of course I will discuss with them all of the advantages of home ownership (they are currently paying $615 per mo.). I will try to get an idea of how much cash they have to put down and their credit situation. I can put in up to 6% of the sales price ($4,380) to help with closing costs and still have a decent profit. I will sign them up and then I will ask them to go the a bank and get pre-approved for a loan. Then we will do a simultanious closing, and if all goes well, I will walk away with at least $7,620.

The bad news is that this is my only plan of attack. If the sellers have bad credit I will notify the seller that I am not going to buy the property. Unless someone here has a better idea???

Thanks always


Re: My Advice - For what it’s worth. - Posted by Jim Simons

Posted by Jim Simons on January 14, 1999 at 14:18:57:

Hi Kevin,

I agree with what some of the other people have said here.

IMHO - I suggest the following.

    • The amount a house is rented for,(or will rent for) can be a pretty good indicator of what a property is really worth. (You said current rent was $615 a month. If that is acurate and normal for houses in that area, then I would think a FMV might be closer to$61.5K) - You might want to do a little more research. Find out if that $615 is far below what other comparable properties in the area are renting for.
  1. How did you arrive at a FMV of $73K? Has there been an Actual Appraisal done on the property? Did you see comps where other comparable properties in the area have ACUALLY SOLD for that much, or are you going by prices you’ve seen other properties in the area LISTED for? Sometimes there is a big difference.

  2. Although it’s not a really good indicator, I’d ask to see the Tax Value of the Property. The Tax Value of a property is usually lower than the FMV, however it’s not usually drastically lower. I know one investor who makes most all of his offers for 50% of the Tax Value. He bought 110 houses last year and sold 100 of them. And our area is pretty competitive. The good deals are out there.

4.The deal might still work, Ex. - Is there an extra lot that could be seperated and sold, or built on and rented. Ex. - Is the property located where it could possible be re-zoned as commercial. Ex. Is the house a big house located near a college where you could possibly rent out rooms. You might be able to increase the monthy yield in any number of ways.

  1. I just did a little quick and dirty calculation. If the actual APPRAISED VALUE of the property was $73K, I’d offer maybe 30% of that amount. (about $51.1K) You would stand a better chance of making a healthy profit. At this price you could probably find a hard money lender to finance the property, either for you, or for the current tenant, or for another buyer you find, and credit wouldn’t be an issue. If you had to take the property yourself, you could probably rent it out for a nice monthly cash flow, and long term benefits (tax benefits, property appreciation, etc.)

  2. I think you already know, and maybe your instincts are trying to tell you - It’s really dangerous to put all your eggs in one basket or play any game when you don’t know all the rules.

  3. Try to buy investment property the right way, at the right price, or don’t buy it. Make your money going in. Not on how much you THINK you may be able to sell the property for later. Try to buy it knowing you could make a nice profit in any one of several ways - In case the primary plan doesn’t work out.

From the way you described the deal, it doesn’t exactly sound like there are other buyers beating on the sellers door wanting to buy the property. Maybe you could take a little more time. Do a little more research. Try your best to KNOW exactly where where you stand. The more you do this, the more you’ll get to know your area and the circumstance under which you need to operate in order to make a healthy profit.

Just my 2cents worth - You’re mileage may vary.

Good Luck and God Bless

Re: Advice!! Will this work? - Posted by tom

Posted by tom on January 14, 1999 at 10:44:18:

To be honest, does not sound to creative:

  1. What NEW incentive does the tenants have to buy from you now a opposed to buying from the owner in the past. Especially if they have to go the bank and apply for a mortgage (which they probably cannot). If you were offereing some sort of owner financing, then maybe.

  2. Why would the owner sell to you for 61,000 when he could sell to the tenants for 73,000. Is this FMV a reliable number or is this what houses are “listing” for. Why had he not tried to sell to the tennants before?

And part that concerns me the most; you say that if the tenants do not sell this is your only plan of action. If you are BETTING that the tennants will buy from you, you are playing a dangerous game. If you enter in a contract that you do not plan to close on, people will be less likely to deal with you in the future. Whether you get out legally or not, your reputation is more valuable to your collegues than whether you got out of the contract legally. People will not take you seriously if you have a reputation of breaking deals; wheather legally or not. Maybe you can consider an option and explain that to the owner.


Re: Advice!! Will this work? - Posted by George

Posted by George on January 14, 1999 at 10:10:32:

You need another plan. 1) Tenants usually don’t have down payment. 2) Out of town owner was probably anxious to fill vacancy and tenants probably don’t have good credit. 3) I don’t think you’ve got enough spread between buy & FMV.