Posted by Tyler on April 26, 1999 at 24:37:01:
Just a few more questions, Mark.
>>20% is air!
I don’t doubt that you know the values for the areas that you do business in, and I am certain that you know the comps within a safe range. The problem with many comps are those numbers are for financed properties. For a buyer to let go of thier cash, there needs to be an incentive to do so.
Am I missing something, here? Are you saying the only way to sell a rehabbed property is to an “all cash buyer”? If so, then I’ve got good news for you. Maybe you can elaborate…
>>I don’t believe that anyone is willing to pay full price for a cash sale. 20% off of lender value is a good ballpark for an estimate with one major exeption.
If your comps are owner financed!
I’m still wondering…what are saying here?
>>If the comps you are using for the values contain a high number of owner financed properties, then the AIR value is propbabbly higher than 20%.
I do agree that an owner financed property would constitute a higher price…and this must be considered if for some reason your only comps are on owner financed props.
>>Only 5K in repairs.
More than likely a flipper or a rehabber isn’t going to be the buyer for this property. More than likely a landlord - buy and hold type investor will be the target for this property.
They are buying cash flow, not the change in values (created or otherwise).
I would buy this property in a heartbeat, and I’m not a “holder”. There is enough back end profit to make it worth buying for the increased MV only…at least my bank account thinks so!
>>I don’t doubt that there are people that are willing to make less than what I would have on this same project it’s just not something that I would reccommend planning on making less.
I think for a flipper to pay too much for a property is a great way to to close up shop in a hurry.
Just in this example, if I would have bought this property using my numbers, I could easily made 20% of the after value by selling to you at your numbers. All without so much as breaking a sweat or calling my crew to the job site.
What numbers? I didn’t put any numbers in my post, did I?
>>Sure there are deals that others will buy that I will not. There are people that will make a fine living off of deals that I will pass up.
So far, I can only manage a small number of deals at one time (the better system I design the more I will be able to handle). I see no reason to starve my machine.
My opinion of your final comment is that, I think these deals are especially “system” friendly. They take MUCH less rehab, requiring considerably less coordination or holding costs.
You could whip out 2 or 3 of these, if you can find them like this at 60% of ARV with only 5% rehab costs, in the same time it takes you to do ONE major overhaul.
Not to mention the creativity you can use on the resale. I’m working one now where I won’t even have to do much rehab at all. In fact the numbers are almost exactly like this one. The difference is, I’ll put in a buyer that wants to “earn their downpayment” and do the work themselves. I will get over FMV because of the terms I am offering, and not have to worry about rehabbing or holding costs. I’ll be Leasing to tenant/buyer for one year with option to buy at the end of year. This will give them time to finish repairs, I’ll get some Option Consideration up front. At the end of the year, they finance it, and I get cashed out. In the mean time, I enjoy a small but noticeable cashflow on the spread. And what I DIDNT tell you, is that I’ll get a fat chunk of tax-free change on the loan I’m getting to buy the prop. But that’s a whole different can…
Sorry…didn’t mean to ramble on…wheeew!
Hope you will answer some of my questions, I am still really curious about the logic…
Thanks for playing, Mark.