Help... Possible $30K 1st Deal! - Posted by Andy (IN)

Posted by Stacy (AZ) on February 27, 2002 at 11:29:14:

Excellent advice, David. This is definitely one of the most overlooked areas of REI for the new investor, and one of the areas that will most likely give that new investor a “seminar” if not treated correctly. Too many new investors assume a house will just sell itself, and fail to consider holding and marketing costs, or the correct price to offer.


Help… Possible $30K 1st Deal! - Posted by Andy (IN)

Posted by Andy (IN) on February 26, 2002 at 14:22:15:

I have never done a deal, aside from buying my own house, but I have found one that may be too good to pass up. Here are the specifics:

The house is a 3/2 brick ranch w/ 2car-gar. in the nicest neighborhood in town. It has been on the market for over a year. The realtor says it would be worth $150K after about $10K in repairs. The family is asking $99K, but there was an accepted offer of $95K that fell through because of financing.

I’ve always heard that it’s best to buy the worst house in the best neighborhood, and that’s what we have here. As a matter of fact, there is a mansion next door to this house.

Here is my plan (please give your opinion):

  1. Offer them $90K.
  2. They agree to owner finance the property for $112,000 at 11% over 30 years.
  3. My investor pays 94% cash at closing for the $112K note ($105,280).
  4. $90K is used to pay off the seller.
  5. $15,280 goes to me to pay for fix-up, closing costs, etc.
  6. Sell the house after repairs for $149K, again using seller financing, 2nd lien, etc (selling this note to investor to get my cash).

In summary:

$149K Selling Price
9K Estimated Discount from Note Sale
112K Payoff of original note

$ 28K Potential Profit

Have any of you done this before? I do have this investor lined up for a deal like this, but I wanted to see what comments/suggestions I got from you guys first. Please let me know what you think.

lower…lower - Posted by Kent C

Posted by Kent C on February 26, 2002 at 17:22:59:

I’m not in a coastal area but it is common for a fixer upper to be on the market for a year. I call it seasoning…really drives the market down on it. It usually means it has enough repairs a home owner was scared off. But could mean price is too high for repairs needed too. My experience is the longer it sits without a buyer the more it means those repairs will cost. Site some of these repairs. Ill bet they are more like $20k+. And Ill bet that realtor estimate is a bit high too. Look in the area, YOU can find a comp. Ask as realtor to show you comparables in the area that sold. If it is “theoretically” worth $150k, I would want to be able to sell it at 80-90% FMV for a quick sale…and STILL make my profit. This means a $120k sale after $20k+ repairs plus cost of financing. Maybe you should be biddign $70-$80k and sitnig those repairs to the realtor. Tell em to take it or leave it …“I am a cash offer”.

You can ALWAYS come up but never down in price.

Kent C

If It’s Been On The Market… - Posted by phil fernandez

Posted by phil fernandez on February 26, 2002 at 16:33:07:

…for over a year, it’s not worth the $99,000 the seller is asking. If the house were to be worth $150,000 with only $10,000 of fixup the seller themselves would be crazy not to do the fix up and reap the benefit.

I have big doubts that there would be that large of a difference in the as is and after repair prices. Lesson: don’t ever, ever, ever believe the realtor when they try to feed you this BS. Remember they are salesmen trying to make a commission at your expense.

Verify everything yourself.

ahhh, the REALTOR said … - Posted by Redline

Posted by Redline on February 26, 2002 at 15:07:53:

“The realtor says it would be worth $150K after about $10K in repairs.”

This value from the Realtor is meaningless, and hard to believe actually … as you say they can’t sell the thing asking $99k.

You yourself need to verify this number before you proceed. You could be looking at a $99k house in need of $10 worth of work or you may be looking at a deal … but NEVER take someone else’s opinion of FMV.


Re: Help… Possible $30K 1st Deal! - Posted by AL-SO CAL

Posted by AL-SO CAL on February 26, 2002 at 15:05:52:

Andy-In my area deals do not sit on the market for a
year. One hour is more like it. Why did all other
investors and speculators pass on it.
What are the negatives of the property? Because you
face them on your way out.
Example: Investor in my area picks up house-rehabs it
with $80,000 and did beautiful job.
Sits empty on market and doesnt sell. Why? Bedrooms small and floorplan bad. He finally sold and lost money but worse than that he wasted a lot of time. You can always make money but not time once youve spent it. Good Luck.

Re: Help… Possible $30K 1st Deal! - Posted by Nate(DC)

Posted by Nate(DC) on February 26, 2002 at 14:37:37:

When you’re re-selling it after rehab, you do not need to go through all the owner financing and note-buying business. Just sell it on the regular market to a buyer with conventional financing. If it is priced right, that should not be hard to do, and your profit will be higher.


Re: If It’s Been On The Market… - Posted by Andy (IN)

Posted by Andy (IN) on February 26, 2002 at 20:20:13:

I forgot to mention that the house was recently reduced to this price (it was initially listed for 129k, and then again at 119k). The house has been in probate, and the children of the deceased owner are don’t wanters. The house is paid for, so any cash they make is theirs. Plus they live out of town and probably don’t want the hassle of doing the work/don’t know what to do/etc.

But yeah, I realize that realtors’ estimates of property value are almost always too high, so I’ll be very careful on this one. Thanks for your help.

Re: Help… Possible $30K 1st Deal! - Posted by Andy (IN)

Posted by Andy (IN) on February 26, 2002 at 14:44:02:

Thanks for the advice. Yes, you’re right. I would prefer to sell to someone with conventional financing, but I thought I would be able to sell it quicker using the seller-financing method. I thought it might be worth giving up a chunk of the profit to have a quick sale.


If It’s Been On The Market for 1 year… - Posted by David Krulac

Posted by David Krulac on February 27, 2002 at 07:12:10:

then something is wrong and its almost always is the PRICE or the Marketing. An old investor, who had bought and sold hundreds of properties, once told me that if a house is properly advertised, so that people know that its available and it hasn’t sold in 90 days, its overpriced.

Pricing and marketing are keys to sucess in the real estate business. If you don’t understand either you are doomed for failure in every market except the runaway seller’s market, where everything sells in days for more than asking price. Buyer’s panic fever will cause an overpriced house to sell. But the is not the norm and usually not long lived.

Some people short change the cost of advertising. We advertised in a very large metro newspaper for 5 days and is cost over $800. I currently have an ad in a weekly freebee paper that’s running for 6 weeks for $64. The first ad was for a $300,000 immaculate house that we sold the first week for more than asking price. If we had used the $10 ad for that house, I doubt we would have had the same sucess.

Price pointing is another key to marketing. Today with computer scans its even more critical. People search on price and use round numbers as the cut off criteria. Even searches are cutoff by round numbers. I sold a house recently that was probably worth up to $105,000. There is not way that I would ever price a house between $100,000 and $105,000. People/real estate agents in there search
will cut off at $100,000 and not be aware of your house. I priced the house at $99,990 with a 65 commission instead of my usual higher commission. It sold is a few weeks for full price. that $10 less than $100,000 made a difference in selling.

Commissions are another marketing technique. Last year I sold property with commissions from 5%, 6%, 7%, 8% and 10%. Yes 10%! the commission matches the property. If a property is harder to sell or there is a thinner market, then I want to favorably distinuish my property so that it gets sold. The 10% commissions were paid on 3 rural properties about 50 miles away. The local area is sparsely populated and I figured that the larger buyer’s pool would have to come from the city more populated area. we were asking top price and sold in 2 weeks to somebody from the city.

Your marketing needs to include where to advertise, (a bandit sign on the rural property would not draw as much interest) how much to spend, price point pricing, and commission if listed.

Good Luck

David Krulac
Central Pennsylvania

Re: Help… Possible $30K 1st Deal! - Posted by Nate(DC)

Posted by Nate(DC) on February 27, 2002 at 08:42:54:

I disagree with that analysis. With all of the financing programs available today, almost anyone can get a loan. I do not think that offering owner financing opens up your pool of potential buyers much bigger. And, the potential buyers you would gain all will have lousy credit, so they are not someone you would want to finance anyway.

Just my opinion…

Where are you? - Posted by Dan(IN)

Posted by Dan(IN) on February 27, 2002 at 08:10:46:

Where are you in Indiana?

Re: Help… Possible $30K 1st Deal! - Posted by Dan(IN)

Posted by Dan(IN) on February 27, 2002 at 08:07:26:

In my opion, if you finance the property that fact alone makes the house worth more money. Just market to buyers that can’t qualify at a bank as long as you get a good down payment(about 10%)or more if you can get it! Dan(IN)