Posted by Millie I. on May 31, 2000 at 24:54:21:
Tom,
Look at the present condition of the house. Ask yourself if an average homebuyer, who knows nothing about rehabbing, would buy this house and live in it without doing any work, and be happy.
If the answer is ‘Yes’, don’t buy the house, this is too close to retail. You will be competing with retail buyers who will pay too much and kill the deal for you. What little profit you make after upgrade is not worth the time and trouble of an investor.
If the answer is ‘No’, now you got the bank where you want them. Is ‘Lowball time’. At this level, your competitors are investors, otherwise vultures. Chances are they are less mercyful than you are. Start around 50%. Others may be offering less than you, or more. The decision is subjective – what you realistically want to pay for it. Make an offer, don’t wait or it will be gone, you can’t steal in slow motion.
To figure out your first offer: Calculate backwards from the (lower)after rehab value. From $140K, deduct 10% for selling commision and expense. Your adjusted gross may be $120K to $126K. Give yourself $25K to $30K profit. Estimate $10K to $15K rehab costs to bring everything up-to-code and looking nice. Your balance is around $80K. Now you know you don’t want to pay much more than that. Start lower.
Start with $65K, if they turn you down, don’t worry, that’s how the game is played. Watch the listing. They may drop the price every month or so if the offers they get are all lower than expected. They may drop it within the reach of the highest bidder. If the property is still there 2 months later, make another offer. They will most probably counter, counter back, not too much, but enough to keep their interest. Keep in mind that the more you offer, the less profit you will make, but if you offer too little, you may lose their interest. Meanwhile, at any time, another investors may steal the deal from you. On the other hand, if the deal is too high for you, someone else can have it.
The important thing is ‘Never be a Motivated Buyer’. A good deal is always nice, but no deal is better than a bad deal. I would be happy to pay somewhere between 65K to 80K. I would really have to re-calculate my figures before I would go above $85K.
My 2 cents!
Millie I.