What Would You Do With This One!!! - Posted by John Estell(Denver)


#1

Posted by John Estell(Denver) on December 27, 1998 at 23:54:24:

Thank You so much for your help and advice.


#2

What Would You Do With This One!!! - Posted by John Estell(Denver)

Posted by John Estell(Denver) on December 27, 1998 at 10:48:59:

I have found a true fixer upper. They want $119K for their property and the FMV in the area is from $179K to $239K. I want to just flip it to someone else. I don’t have the money to keep properties at this time and just want to flip properties until I’m debt free. I’m meeting with my real estate agent friend who told me about this property before it hit the market. I’ll find out about liens and other things. I need to find out how much renovation is needed in order to make an offer. I don’t want it if after repairs the purchase price would be say $140K and the profit potential wouldn’t be worth the effort. Does anyone think that this would be a good Flipper. Thanks.


#3

Re: What Would You Do With This One!!! - Posted by SCook85

Posted by SCook85 on December 28, 1998 at 24:31:08:

John,
First of all 179k-239k is a very wide range for comps. You need to narrow that down some. If you can’t you should assume the worst case of 179k.
Most investors won’t go into a property above 70% of its after repair value. This is after all costs including closing and repairs. That puts you somewhere around 125k that an investor would want to go into this home after repairs.

Assuming the home needed 20k in work, and closing costs would run about 5k. The most investors would want to pay for the home is 100k. You would have to offer less then that to get your profit in there.

This home is pricier then the homes that the investors in my area like to deal with. Unless you are in a very high dollar area I would be worried about whether or not investors in your area want to pay that much for rehab projects. There are a couple around me who will do so, but they use the same formula that I used as an example above.
I also don’t want to say that all investors use that formula above. Many may be happy with 10k-15k profits on each deal, but I wouldn’t take the chance of going that thin in the deal. You need the cushion there for yourself. If you offer to much you won’t be able to move it. If you offer low enough you will have investors bidding to take the property off your hands.

SCook85


#4

Re: What Would You Do With This One!!! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 27, 1998 at 13:58:58:

John, you’re doing the right things. Check liens, get your friend to do a CMA, walk through the place and assess repair cost. Bring a friend that knows home repair costs, or hire a contractor for an assessment if you aren’t sure. Only after this can you know if it’s worth flipping.

If the property needs $20K in repair, and will be worth $179K, that leaves some room for a flip. Remember to make your money going in…just because they want $119K doesn’t mean that’s what they’ll get. Offer $95,530 cash and negotiate from there. After you walk through, start calling investors/rehabbers ASAP to see if they’re interested (don’t tell them the address until you’ve penned a contract).

Investigate…may be something worth flipping.

Stacy (AZ)


#5

Re: What Would You Do With This One!!! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 28, 1998 at 13:47:27:

SCook85 makes an excellent point. In my area a home worth 179K is just a typical middle-class home. But if in your area a 179K house is pricey, you should be careful. There are, as he states, fewer rehabbers that will go for upscale houses. It’s not impossible, but your market will be somewhat more limited.

One of the most important things to remember is to never fall in love with a house. If the numbers don’t add-up, pass it by. There will be others.

Also, see the post from Jackie in Dallas a little further up. She describes the simple formula for calculating what you should offer on a flip property.

Stacy


#6

Re: What Would You Do With This One!!! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 27, 1998 at 14:10:59:

I’d like to clarify my post. I’ve always found the best way to start negotiating is to ask what their absolute bottom price would be if you offered all cash and a quick close (30 days). Don’t mention a price first, make sure they do. Then you can put in your low offer and start negotiating.

Many times I’m astounded by how much the price drops by asking this question. Maybe you already knew this, but thought I’d mention it just in case.

Stacy (AZ)


#7

Re: What Would You Do With This One!!! - Posted by John Estell(Denver)

Posted by John Estell(Denver) on December 27, 1998 at 15:05:52:

Stacy they also want $1,000 earnest money. Is this standard for SFH’s and it’s not refundable is it??


#8

Re: What Would You Do With This One!!! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 27, 1998 at 15:31:46:

Absolutely not. No way would I put-down $1000 unless I knew for a fact that I had a fully qualified investor that will buy the property. And that is only if the buyers would not accept less earnest money.

I put down $100, some like Jackie in Dallas only put down $10. Be firm. There must be a clause in your contract that states you have 15 days to inspect and approve the property or the contract is null and void, and earnest money is returned to you. Further, you need a clause in your contract that states that the full liquidated damages for non-performance is limited to your earnest money deposit.

With these two clauses you can search for an investor for a full 15 days, and if you don’t find one, you can send a registered letter stating that after a full inspection, you do not approve of the property, and you get your earnest money back. Should the term of the contract expire (I use 30 days to close) and you find that you cannot perform, you lose only your earnest money.

Now some will argue that you really shouldn’t enter into the contract unless you could close on it yourself. You’re taking a risk that you can find an investor before the 30 days (or 15) is up. If you can’t find a buyer, and you don’t close, you’ve jerked people around. There’s also a small chance you could still get sued, regardless of what your contract states. Just be careful. I’ve always found investors to flip to, but I have a list of investors to call. That’s why I’d get on the horn ASAP to find one. It would be best to have a few of them say they’d be interested before you even sign the contract to purchase. Then after you sign, get the investors to the property ASAP.

Also put a clause in the contract that you have the right to show the property to potential renters, appraisers, inspectors, or other investors given 24 hours notice.

Put a clause in that states “This contract is fully assignable by either party.” Or, some put “yourname and/or assignee” in the buyer’s blank. If questioned about it, you can say you’re not yet sure how you want to purchase the property, as an individual or in a partnership or trust.

Now if you do a simultaneous close using a separate sales contract, make sure it states that there are no warrantees implied, that the buyer has inspected and accepts the property “as-is”. I really think it’s much better to assign the purchase contract instead of going for the simultaneous close.

Hope this helps-

Stacy


#9

Re: What Would You Do With This One!!! - Posted by Lucifer

Posted by Lucifer on December 28, 1998 at 05:23:43:

Stacy;
So if you just assign the contract{signed ,buyer and or assignee}you don’t have a simultaneous close cuz all you do is assign the property (contract} to another individual? So all you do is collect the money as a finder’s fee or something?


#10

Re: correction - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 27, 1998 at 21:03:07:

I posted:
And that is only if the buyers would not accept less earnest money.

What I meant was:
And that is only if the SELLERS would not accept less earnest money.

Sheesh!

Stacy


#11

Re: What Would You Do With This One!!! - Posted by Stacy (AZ)

Posted by Stacy (AZ) on December 28, 1998 at 13:34:06:

That’s right. When you assign a contract, you receive an assignment fee, and you are out of the deal. In essence you have sold your position to a new buyer who steps into your shoes. Cool, huh?

Stacy