My first deal! (Need advice please)

Hey Matt, This looks like a wholesale deal to me. You could avoid the costly entanglements, get it under contract and then wholesale it to a cash buyer. Try to get it for a little less seeing that repairs will probably be upwards $5,000. Wholesale it to someone and make $5,000... and walk away. It's a quick in and out on this one. How motivated is this guy to sell? Stan

Good for you

He is very motivated but will not accept less than $6.5k for the house and will not pay any closing costs. The investors that I work with pay $7k max for properties in that area (not a great area) so I don't think I will be able to easily wholesale it. Plus, I will make a LOT more over time if I don't wholesale it.

The other thing to think about is that if I rent it out, I won't get a down payment like I would if I sold it on L/C, so I would have to pay for all the repairs myself. Repairs to rent would be much more than repairs to sell on L/C because the city would require a bunch of minor things to be fixed, whereas if I sold it on L/C, all I have to do is make it livable then sell it as a fixer-upper.

I would try to wholesale it, but we already agreed on the L/C and I don't think my investors would be interested in it if they had to pay $7500 ($6500 plus my $1000) AND all closing costs. Really what it comes down to at this point is that we're past that phase of negotiation and I don't want to try to back peddle.

Numbers are tight. Can you not put a rent to own tenant in? Take a non refundable deposit from them, use that to do the repairs....and then have them buy you out in 3 years?

Is the contract assignable? If it is, you could try to assign it and make a couple of $1k's. Being too greedy could cost you a deal.

How much would the monthly rent be? Would it cover this $500 per month? If there's a vacancy, can you afford the payments? Can you get a mortgage for this? Putting the full amount on credit cards might work too. You'd probably have a $500 per month payment there. Pay for it in full, then refi the property for 75% (or whatever your lender requires) of the after repair value. You might be able to get all of your money back this way.

Thank you all for the input. The contract is assignable. I am not trying to be greedy - I have already made up my mind that if I ever have to choose between making a few thousand dollars extra and taking advantage of someone or losing a deal, I will choose the high route. I'm in the business to make money, but it's not everything.

As far as renting it out goes, I could pay for the repairs then try to refinance, but I don't think I could get a bank loan. I only work part time, and haven't worked at all in two weeks (living off savings at the moment - not good!), so no bank will give me money.

As of right now, I think what I'm going to do is resell the property on L/C to another buyer for around $30k over 3 years or so. That way I can get a down payment to cover only the repairs needed to make the place livable, not have to get it city certified for renting, and save myself having to try to borrow money that I can't get to get my own money back out. I won't make as much in the long run (if I were to rent it for the next 10 years or so instead of sell it over 3), but it seems like the best choice for me now because it's my first deal and because I don't have the cash to fix it up on my own.

Hey Matt. That's what I did for my first deal the Net me $53,800. There is good money in it. Lease Option,(sandwhich lease) is a simple process and makes you more money while providing a win win win situation. Good luck! Stan

So I have a bit of a problem....

The seller and I verbally agreed on $1500 down and $500/mo, which is no problem because I have 30 days to find a tenant. I will also need to fix the plumbing (pipes stolen from basement), connect the furnace and ducting (he has the furnace, I'm not sure about the ducting), and fix the fuse box (I'm not sure what's wrong with it.) These things can all be covered by the down payment I get from my buyer, BUT.... (and here's the problem) if there is something wrong with the furnace, the plumbing, or the electrical system, I won't know it until it's all connected, and it won't be connected until I find a buyer and get their down payment. If there turns out to be a problem with any of those systems after that, I would have to pay to have them fixed, and it could be more than I can afford. The seller cannot afford to fix these things on his own, which is why he is selling, so I can't make the offer contingent on him getting the house in working order.

What do I do??

If I were to sell the house "as-is" on L/C, I MAY find an end buyer willing to fix it up, but that still doesn't eliminate the fact that if there are problems with the aforementioned systems, I still am making payments on the house to own it, and then I would own a house with problems.

Any suggestions? I go to negotiate tomorrow morning, so I'm hoping I can get some advice tonight!

What if other problems rear there ugly head after the power is back on and/or the owner is trying to sell it before the power is back on to avoid dealing with some issues he knows about.

Matt i wish you the very best and i understand the excitement of "MY FIRST DEAL" "MY FIRST DEAL" but you may be in for a seminar. rehabs always have surprises...

good luck i wish you the best
WALT

Matt, put a condition of sale in the contract. Conditional to an inspection. This way you can have an expert look at it and tell you exactly what's wrong. If it turns out to be too much, that's your out... And all you lose is the cost of an inspection. Good luck, Stan

Matt,

Congrats on finding what might be a deal, if you can get all of the lose ends tied up. Personally I'd look at trying to do what Stan first said, just wholesale the thing.

Your comments were that your Buyer's won't pay more than $7k for a similar property in that area (kinda bad area I guess) and that the Seller won't take less than $6.5k. Does this say something about the deal??

If the utilities (water and electric) are not on, you really cannot get a good feel for those items. Most deals should have a little room for a fudge factor or contingency, if something else goes wrong....this one seems rather thin.

Keep working on it; I hope you can make it work out for everyone.

--Walter

That's exactly what I'm thinking. There's no way I'm going to commit to it before knowing everything works. Thanks for your input and for wishing me good luck!

I thought about doing that. In most cases it would be a viable solution, but there's no way for the inspector to know if the plumbing and electrical systems will work once I do the work that the seller says "should" fix them. So even an inspection won't guarantee no problems once I put the initial fixes in place.

Thanks for your input. Yes, the deal is tight in terms of the amount it will take to fix it up. After that it's smooth sailing though. I just need to make sure the main systems in the house work. As I mentioned earlier in this post, I do understand that there's no way to know for sure if the water and electric work if they are not on. I may have to try to renegotiate a wholesale deal if I can't get assurance that the main systems work. Perhaps I could get him down to $6k and only take $500 for the wholesale. I'm just not sure if that would fly with the investors I have because the seller will not pay any closing costs.

We'll see how the negotiations turn out tomorrow, I suppose. If I can get the seller to fix the furnace/plumbing/electrical box, we'll be able to make a deal.

Matt, if you go wholesale, pretty confident that your investor would pay a bit more than $7,000 if the ARV is in fact $30,000 plus. If they are telling you that, They are playing "car salesman " on you. Put $1,000 in your pocket and wholesale it. If they don't give you the opportunity to make an extra $500 then maybe you need to find another cash buyer. Stan

It's probably only worth $25k ARV if not selling on L/C (because people who want to buy a house but can't get a bank loan will usually pay more for it). If I take $1k, they are at $7.5k, then closing costs ($2k?) plus around $5k for a complete fix.... they'd be looking at $14.5k, which doesn't look as great anymore. I'll see what I can do though. I'll definitely report back tomorrow to post the results.

They make $14.5k , you make $1,000? Don't discount yourself. Keep it positive...They are making $14.5k!!!! That's positive! Anyway...hope it works out for you, be confident, make it happen. Let us know! Stan

Hey guys,

I have a short sale thats a monster deal, but coming up short on funds...dont want to end up paying more than what i need to. This one is for personal live in..need advice please.

Need more info. Can you give us details of the deal? Stan

Hey Matt...How did the deal go this morning? Stan

Either way your cash buyer would have come close to 50% off ARV. Plus your $1k, I really hope you were able to wholesale this one.

Grace and Peace

Get a contractor in the house, and have him give you an estimate for the repairs; assume you have to,repair the plumbing and other issues that you are unsure about; you will be better off over estimating than under estimating. If you can still make a profit, put the rehab on your credit card and then pay it back with what's left from your rent...

Good luck!

Sorry I haven't updated until now, it's been a very busy day.

The outcome is this: I decided that the repairs were too risky for me to take on all alone because there's no telling if there's anything else wrong with the big systems in the house. I explained this to the seller and we talked through it, and he decided after hearing where I stood and the risk I would be taking that it would be better to wholesale it. He dropped his cash price to $6k down from $6.5k and we are going to sign the contract tomorrow so I can take it to my investors.

I haven't decided how much I'll ask for the wholesale yet, but I have to consider that the buyer will have to pay all closing costs as one of the seller's stipulations, which adds quite a bit to their side of the deal.

Hopefully someone will be interested in it!

Have a huge property on a short sale, needs some renovations, but its a monster at 3345 sq ft, 2 stories in a Golf Community. Short sale is at 150K.

It would be better if you created a new thread, independent of this one since it is entirely a completely different conversation. Agree? Just a suggestion. What this will do for you is get your question viewed on the home page, top-right, where it says "Active Forum Topics", as it's own thread. Jumping into someone else's thread limits who will see your post, and to some would be considered as "hijacking" a conversation.

We know you didn't mean any harm, but the suggestion that will help you get more visibility on your question or comment you'd like people to notice still stands. Creating a new post is the best way to get visibility quickly by everyone. Each time someone responds to your post, it will go back to the top. People are also drawn to new posts, so creating a new one specifically for your short sale/investment will draw more people to it to see what you are talking about.

Good luck!

Jason