Posted by Al-FL on May 27, 2006 at 12:43:15:
The 590k price is in a cookie cutter neighborhood. It’s actually the lower-middle model SFH!
HELP - Is this even a deal? 590k ARV, asking 510k - Posted by Al-FL
Posted by Al-FL on May 26, 2006 at 14:19:48:
Thank you for taking the time to read this, and hopefully respond! 
The seller has got a foreclosure sale date in 3 weeks. Pretty house worth 590k, owes 430k on it. Not sure what the backpayments are on it, I’m guessing around 10-20k.
She made an offer to sell it for 510k - and I didn’t try to bump down yet, that’s gonna be my next call.
At 510k, is this a deal worth purchasing with Hard Money, and then either flipping quick to another investor or even reselling to a retailer? If not, how much lower should the price be?
Al
Re: HELP - Is this even a deal? - Posted by John Corey
Posted by John Corey on May 27, 2006 at 07:17:45:
You will not be able to find a hard money lender to fund this as they will want to be at no more than 70% LTV (maybe 65% LTV). The best financing is the present financing (taking over the payments subject-to).
The lady gets nothing or at least nothing up front. In X days she has zero cash and a big large foreclosure on her credit report plus moving costs. If she signs it over to you and you pour in the cash to bring it current then you have fixed her foreclosure problem. She still has to move out before you part with your money.
If you are feeling like you have to give her something do so after you find a buyer. She gets some amount as a percentage of the net cash. If you have lots of carry costs, repairs, etc. then she takes a hit. If you sell quickly then she gets a bit more (again, assuming you agree to pay her anything).
Just paying the back payments and making a few more payments before a pay off has value to her credit so she gets a benefit even if you never pay her a dime.
John Corey
Does the 70% rule always apply? - Posted by Al-FL
Posted by Al-FL on May 26, 2006 at 19:05:50:
Thanks Mike and Joe for your replies.
Does the 70% rule always apply, even to properties that are over 500k? A 30% spread on a 590k property is 177k! That’s a huge spread…
Just wondering if you guys always use this as a fast and hard rule, or if you count all the expenses (holding costs, agent commissions etc), your profit, and then come to the bottom figure that way.
Al
Look at it this way - Posted by Mike (Seattle WA)
Posted by Mike (Seattle WA) on May 26, 2006 at 16:09:46:
With 3 weeks till auction, her house is worth about 430K + back payments + plus minor moving expenses. Let her know that in 3 weeks, with a foreclosure on record, she is financially screwed for years. You can wait a few weeks for a deal, she can’t.
John-Thanks for that comment - n/t - Posted by Al-FL
Posted by Al-FL on May 27, 2006 at 12:45:46:
n/t
Re: Does the 70% rule always apply? - Posted by John Corey
Posted by John Corey on May 28, 2006 at 06:30:27:
The rule has nothing to do with the price. It is all about the margin that a lender will expect when financing an investor.
The 70% rule is mostly so an investor can obtain hard money or other bridge financing to do the deal quickly. The percentage is set so you can exit quickly and they have enough margin to make a profit.
If you want to go higher you are cutting off possible exit paths. The risks go up.
John Corey
Re: Does the 70% rule always apply? - Posted by Natalie-VA
Posted by Natalie-VA on May 27, 2006 at 15:57:23:
I don’t like the percentages. I am way to anal to rely on that. See my post below.
http://www.creonline.com/wwwboard/messages/19910.html
–Natalie
Re: Does the 70% rule always apply? - Posted by Rich
Posted by Rich on May 27, 2006 at 15:28:20:
Hell yeah it still applies… Yeah, sure the numbers are higher, but guess what? That means that your carrying costs are going to be higher as well. That’s why we use percentages!
Re: Does the 70% rule always apply? - Posted by Killer Joe
Posted by Killer Joe on May 26, 2006 at 21:01:12:
Al,
The first 10% of any deal is ‘air’. We use that term because as investors we need that amount as a hedge. So the air in this deal is worth $59K. That leaves $118K out of your $177K. Now subtract a 6% sales commission of $35.4K and you are down to $82.6K left. Add holding costs of 4 months and you can easily rack up another $20K depending on taxes, loan terms, HOA, etc. So now we are down to $62K.
I am generalizing here for your benefit so you can get a quick overview of where your $177K is going. It is amazing, but a lot of newbies really belive that there is $177K left on the table for them in a deal like this one.
If your market is screaming hot you can no doubt recapture that 10% air we talked about, but to count on it going in leaves you overexposed in most cases. So yes, your business needs to purchase in the 70% range to be sustainable. HTH
KJ
Re: Look at it this way - Posted by Joe
Posted by Joe on May 26, 2006 at 16:41:14:
Offer her moving expenses plus a small amount max (maybe $5k) for her time. No retail buyer is going to buy in under 3 weeks, so that market is completely cut off. If she says “but so-and-so sold their house for blah blah”, ask her how long that sat on the market before getting an offer, then how long that offer took to close. With 3 weeks left, her only market is investors. And investors buy at 70%, plain and simple.
And no, I would not expect you to be able to wholesale this to anyone if you buy at $510k. Agent commission alone could be $30k on a single part of the transaction.
Re: Does the 70% rule always apply? - Posted by Bob Smith
Posted by Bob Smith on May 27, 2006 at 07:42:43:
Depending on where you are, I’d assume holding costs will be a lot longer than 4 months. I’d personally figure a year for high end property like that. That’s primarily because property like that has, in my opinion, more than 10% air. Higher end property values are a lot fuzzier than regular houses, unless they’re in an area of substantially identical houses, so you need a lot more room to correct mispricing aka lower the price. Add to that the problem that once an owner starts actively lowering their price, buyers tend to wait a while before making offers because they want to see if you’ll lower the price some more, increasing your hold time.
Re: Does the 70% rule always apply? - Posted by John
Posted by John on May 27, 2006 at 08:45:00:
Bob,
Do not assume this is a high end property just because of the 590K price tag. The poster does not say where this is located. 590K will buy a mansion some places and only a small fixer-upper other places.
Re: Does the 70% rule always apply? - Posted by Bob Smith
Posted by Bob Smith on May 27, 2006 at 18:59:45:
My point is that a house that expensive should be treated as high end unless that’s near the median for the region, not just the town. There is no region in FL where $590k isn’t way above the median, even if it’s average for its subdivision. I’d expect a quick sale in CA, where the median hovers near $600k. It would be well below median in the San Francisco Bay Area, where the median is $725-825k, with a total population exceeding 6.7 million.