Need help on 1st deal!! - Posted by Tim

import · February 23, 2001, 1:00pm

Posted by Tim on February 24, 2001 at 17:12:27:

Thanks Ed. I really appreciate your time and your knowledge!

import · February 23, 2001, 1:00pm

Posted by Tim on February 23, 2001 at 14:00:47:

Here’s the scoop:

I have a 2-unit multi in bad shape that I’m looking to buy, fix and then flip. The seller desparately wants out so they would take just about anything as long as it covers them. That’s where I’m having trouble. I don’t really want to offer more than what they owe for the mortgage because there wouldn’t be much profit for the trouble/work. Here are the numbers:

Sellers asking price: 89,900
Seller owes: 58,000
My offer: 58,000 (max)
Repair costs: 16,100 (at this point, this is a guess. I’m getting quotes)

Buying, Holding, Selling costs: 14,500
After-repair value: comps about 105,000 or more (It’s in a decent neighborhood)

If my numbers are right, which I’m verifying, it would give me about a 16,400 profit. About 75% of the work is going to be subbed out. I would do the easier stuff like the painting and putting on new doors (not a full jamb and door, just the door). So, I really wouldn’t have too much of my time invested in the work.

The profit right now wouldn’t be too bad (16k) but the problem I’m running into is that the sellers still need to come up with their closing costs and the agents commissions (which could add up to another 6k (58000 * .06 = 3,480 + another 2,500 for closing costs (closing costs are a guess)). I don’t know how they will come up with the extra money. I’m offering enough to pay off the mortgage but I just don’t think it’s enough. I though about taking a note back from them and then I would pay the commission and closing costs but now my immediate profit is down to about 10k. I could take the commission and closing costs they would owe me, charge 20% interest and run the payments out 24 months (this would be about 300 a month to me). I could probably do this. I just don’t know if there’s another way.

Sorry this got too long. Anybody have any suggestions?

Thanks.

import · February 24, 2001, 8:02am

Re: Need help on 1st deal!! - Posted by Ed Garcia

Posted by Ed Garcia on February 24, 2001 at 09:02:14:

Tim,

First of all, you don’t have to apologize for the long post, it wasn’t that long. Secondly, I’ve got to tell you that you seem to have thought out in reasonable detail, how your going to do this deal, and I think that your thinking, and the way you’re approaching this deal, makes sense. You’re right it’s a skinny deal, but it’s there, and it can be a deal.

With out getting cute and tell you a bunch of other fancy ways to do the deal that more than likely won’t work because there is only so much to the deal, I’m going to suggest that you tell the broker that you are reaching to do this deal, and that you need them to carry their commission in second position on the property until you fix up, and re-sell it. I would also tell them that you are willing to let them re-list it after the property is brought up to market condition. You may even be able to cut a little better deal, because you’re giving them a Two-sale deal. I hope my suggestion will be useful to you, and I want to wish you Good luck and Congratulations if you do this deal.

Ed Garcia