Posted by Erik Bergerud on March 02, 2001 at 24:35:51:
I am not the most experienced REI in the world… but this deal looks lousy to me. Too many traps. There’s not enough of a discount for a rehabber. Good formula to live by: After repaired value (ARV) X 70% - repairs= your maximum allowable offer. This usually comes in around 50 percent of the ARV. Her loan balance is too close to retail. A lease option might be the way to go if the house is in decent shape. Heck, just ask if she’ll deed you the house!
It’s been a little while, but I am back working some deals. This one I have been wrestling with for about a week now.
House is a 2/1.25, two story built in 1916 on a nice plot for being int the city. The neighborhood is kind of odd, with beautiful fully restored homes right next to shacks. Lady who owns it bought it from HUD 3 years ago for $72k. The loan totalled about $110k which included extra funds for rehabbing. She says she put the money in to the property, but it still needs quite a bit of work. The repairs that she undertook apparently became rather expensive. They had to jack up the house and install a steel beam to strenghten it. She did put down a new hardwood floor and upgraded the kitchen a little. She also apparently had several months with no renters that she covered with some of this money. Regardless, she has none of it left. Right now the mortgage stands at $108k. The only reason I think this may be worth pursuing is that 3 years ago the appraisal came in at $135k. Comps in the area range from $101.5k to $149k. This being the case, I am considering a subject to deal. The reason for this is that the lady really wants out and is very motivated. Her job keeps her out of the country a decent amount of the time, and she doesn’t feel that she can manage the place. She is going into her third month (third payment) now with no renters. The place still needs a decent amount of work, ie. a few broken windows, MAJOR cleaning, miscellaneous painting and maybe some upgrades to the kitchen and bath. The furnace is new, as is the electric upgrade. So I was thinking of selling with owner financing as ‘handyman special’. I asked the lady if she had any money to come to the table with to help fund the work that needs to be done before it is shown and she said no, but that she would ‘do what she had to do’. Maybe I could get $500-1000 from her to try to take care of some of the more noticeable issues. Any way, who among you would chase this deal? Or do you think it even looks like a deal? The last thing to consider is that the property is about 35 miles from my house in another county. All responses appreciated!
Re: Need your opinions on this possible deal… - Posted by B.L.Renfrow
Posted by B.L.Renfrow on March 02, 2001 at 21:01:15:
I think it has possibilities. Keep in mind, though, an appraisal, especially a three year old one, isn’t much good for determining what you can sell the house for tomorrow, or next week, or next month, offering owner financing.
If you can truly get $130-$140 with minimal rehab, I’d do it. You said, however, that in this neighborhood there are junkers next to immaculate houses. Is this place next to one of those shacks? If so, that might make it difficult to sell. It sounds as though most of the expensive rehab has already been done. The other stuff you mentioned should be fairly cheap, so even if you take it subject-to and put a few hundred or a thousand dollars into it, it still makes sense…IF you can get your price.
Posted by ken in sc on March 02, 2001 at 14:54:46:
How about seeing if she will option the property to you for her payment? For example, if her payment is $800/month, every month that you make her payment, you get an option to buy it for that month at a set price. Then, just clean it up (elbow grease, not much $$$$) and try and sell it financed. If you try for 2 months or 3 months and get no takers, at least you are only out a few months payments. You can decide by your responce to ads how long you want to keep trying. You might get lucky and wind up with a big spread, but at least you have very little risk.
Good luck - Ken
Jason,
Subject to is not my area of expertise, but this does sound like a tough deal to pull off, but not impossible. Is the area heating up? Are people moving into the area? If so you may be able to do something with it.
Remember one thing, the $135k appraisal from 3 years ago may have been written to get the $110k that she borrowed. The house may not have been worth that much. Get a good feel for what the home is worth today in its as is condition.
Kitchen and bath upgrades usually are very cheap. As long as you don’t have to tear walls out or put a new tub in you may be able to spruce up the appearance in both of these areas for very little money. And a good cleaning crew sounds like they can make a world of difference.