Potential 1st Deal?

Should I assume by the lack of any responses to my initial post, that I should leave this alone??

Thanks, KO

You may want to have the home appraised as well as a home inspection. There may be some rehab that is not visible as a glance. If everything seems okay, I am thinking of an offer of $55k and let them counter if they choose too, but do not offer full price upfront. He is saying, he first wanting $80K, how do you know if he is telling the truth or not. He may have been asking less for all you know. Go with your best low offer, where your mortgage will be low and more returns on investment. God bless.

Sandra

Here's the way I would approach it.

First, find out what they have rented it before. They're probably going to stretch the truth a little, but you need to know the number. Also, find out if they own the home free and clear. If so, a deal can be worked out with them being the bank. More on that at a later time. Lastly, it may be cost effective to do a "sandwich lease" with you in the midddle. In that way, you can have $650 - $750 per month going to them and $1,000 coming to you from a new tenant. And you keep your money with you for another deal. So many other ways to go, but you need more information from them AND you need to find some comps so you know what the house is really worth. I use the sq. ft. method to equalize house values (a lot of time) as it is the easiest to explain to a seller. Any way, this seems to be a good find; you just need to keep switching the Rubik's Cube around until you get the outcome you want. It's all about ROI, don't get emotionally attached. Sometimes when you walk away, it make the seller want to do a deal with you a whole lot more. Hopes this helps.

I would never buy a house where nicer houses are selling for less. This does not make sense in this market. Even with $200 a month cash flow. With your down payment, any vacancies or repairs it will take quite a while before you realize a true positive cash flow.
You are talking about a conventional loan?? If so, they will get an appraisal and will not loan more than what they determine the value is. 20% down payment? Do you have this?
Are there tenants in place? What is the rent, When does the rental agreement expire?
Get an inspection done.
What were the comps? Even if this place actually comps and appraises at $80,000, I would offer around $55,000 Max.
Maybe a sandwich lease/option if the seller will go for it.

Michael Mangham
MD Home Acquisitions LLC

From the numbers I read your looking at paying three times the asst value!

If the house next store is larger and selling for less then something is wrong.

You can always rehab and add value to a bigger property, but you can't add sqft. to a small house cheaply. And that rent number seems high for 800sqft.

I agree with James, Bill, and Mike totally on this one... I would only do a L/O on this and still only if you can get it cheaper than 80k. The problem is even if you can get it at 55-60k you still have to get the person L/O from you too buy it at a higher price which will not happen if the home isn't even worth that amount. You need to get properties well below value to be worth buying or even doing a L/O on it. I would take a serious conservative look at comps again and also agree 1k in rent seems high for that property (maybe 700-800 max). Good luck and keep us posted KO! Remember don't force this, especially being your first deal...

Don't throw it away. If nothing else, this is an excellent learning opportunity and you may just make some good money for your time as well.

You could still make this attractive as a lease with an option to buy to a tenant/buyer. There may be better options for buyers that can pay cash or get a loan but a buyer who doesn't have those luxuries may pay more for the opportunity to lease to own. It works out something like this:

$70,000 (owner’s asking price)
$2,450 (option deposit or more if you can get it)
$1,050 (rent credits)
$73,500 (total option price)

Go to the sellers and say "What if I could Lease your property from you for a period of time and then buy the property at the end of that time? Would that be a good fit for you?

If I or one of my Buyers could help cover your payments, take care of all the day to day maintenance and repairs, and buy the property at the end of that time without you paying a commission, what would you want to do then?

I don’t know if we could make the numbers work, but if we could come together on the numbers, could we put a deal together today?"

Make it work with this small one. And you can do it with bigger ones later. There is no risk to you. Different strategies for different deals.

You can easily find a buyer on Craigslist. I found one today in less than an hour. Speaking of that: I have a buyer who would like to do a lease to own for a 3 bedroom in North San Diego County. Anyone have a seller and want to split an assignment fee for a lease option? Please private message me.

I'm with Bill. Determine current market rents and sold cma. As well as the WHY they are selling?

If their is true motivation you can create any deal in your offer.

But know your exit before your offer. As if you are holding or are you wanting to assign, etc? Which with all info thus far, just doesn't jump out at me as a wholesale deal. So make sure you tick and tie with Michael's points above if considering conventional.

Always protect yourself, we will encounter a lot of different situations and people that may truly be in negative situations, our hearts go out to them but we have to remember it's business we can't make an emotional decision and risk leaving ourselves exposed. If the numbers don't work, then numbers don't work. Take with you the wisdom you've gained on this to the next! And there will ALWAYS BE A NEXT! lol Keep moving forward!

Either way you decision, Congratulations and GOOD FOR YOU for taking action!!! Be proud of yourself!

Good luck and let us know how it goes!

Jim, Michael, Sandra, Bill-

Thank you all so much for your input and wisdom! Wow, ask and you shall recieve around here!

I'm not gonna lie, some of the comments/suggestions kinda went over my head,(sandwhich lease??) so I'm just going to take a little time and try to soak it up a little...

In the meantime, let me throw some more info about this house at ya'll....

Yes, it is very small sq footage wise, I'm not enamored with this property but however, the owners put some money into this thing and I suspect they're trying to recoup their costs.

- Hardy plank siding installed
- New shingle roof
- New Kitchen Cabinets
- New kitchen counter tops
- New kitchen ceramic tile flooring
- New carpet everywhere else

-Awesome paintjob inside and out on this house. The front porch has a brand new screened in patio, the back door of the house they had a small deck/steps built on.

Obviously without getting my own inspection done, there could be some issues like ya'll have suggested and I wouldn't make a move without doing so. I just wanted to point out as best as I could, visually, how great this little house looks (I promise I'm not in love!)

-YES - They own the house free and clear
-They stated they had been renting out between $400-500 in past years, without any vacancies.
-They are selling due to his health reasons.

I messed around on my banks website earlier this evening to see if I could pre-qualify for a loan for $70K (I would never offer that BTW) and it spit some numbers at me;
30-Year Fixed Rate

Estimated Monthly Payment
$457.72
Principal and Interest $313.58
Property Taxes $110.83
Homeowners Insurance $33.31
Private Mortgage Insurance (PMI) $0.00

Interest Rate 5.375%
APR 5.623%
Loan Amount $56,000
false Points/Cost Points/Credit
1.125 / $630
Settlement Costs $18,132.41
Minimum Down Payment $14,000.00 Party Fees $1,440.24
Lender Fees $1,659.25
Prepaids $1,032.92 Closing Costs $0.00
Cash Due at Closing $17,402.17

I have excellent credit, if I were to ultimately get financing, I would have to tap into my IRA for the closing costs, which does not sound appealing to me. Which is not putting money into my pocket right?

Sounds like I definitely need to look at comps for the area. We searched his tax appraisals and they were listed at $23,500 for the tax year 2010.

Would I be out of line asking this seller what his cost of the renovations were on this property? Again, I just want to remind everyone that I'm not exactly well versed in any of the techniques yet, I was just being enthusiastic today and by chance ran across this house as I was looking at others.

So if the comps in this area were to show a higher selling average than what he is asking, and he is willing to take alot less than the 70K he is wishing for (wink, than perhaps it could be worth pursuing? Waving all inexperience aside for the moment, things pop into my brain, like, what if I did get this property, and when the market ever goes up, I can't get rid of it for a profit because it has no garage space, no central heat and air? Does that not matter because I could potentially aquire this property cheap?

This property I must say is in a great neighborhood for one, low crime, lot's of well to do older folks in the area, close to everything, shopping, etc. I mean, not withstanding my own inspection, it is ready to rent out.

I DO NOT have any tenants lined up, and also there are no appliances in the house either. What would you seasoned investors do? Thanks again for your thoughts and comments, I hope ya'll are not laughing at me too hard (LoL!) I'm just so anxious to do SOMETHING!

KO

People sometimes spend way to much on renovations,most times because they want the place to be nice. Now they rented it for 400-500, What has changed that you think you can rent it for 1000.00 .

For an example I remodeled my house, new kitchen,bathroom w/jacuzzi,custom wall units,1000 sq ft patio,koi pond w/waterfalls,etc.etc.With the labor I did myself no cost I still have over 30k more in the house than others on the street. So I know I will never get it out,but I did it for my pleasure.

Remember this a property you want to make money on, I say find another and don't spend anymore time thinking about it.Look for the ugliest and cheapest house on the street and buy it.

Mr. Kendrick, thanks again, I may take your advice to heart. As excited as I was to meet with these folks and look at their house, I really don't have a problem walking away. You're absolutely right, I don't know that I could bring in a $1,000 per month in rent. I don't know why they spent the money, but it's a cute little house for sure, as we we standing there outside, people were driving by slowing down doing double takes, writing down the phone number from his for sale sign.
All these houses in the area are post WWII houses, huge oak trees everywhere, time capsules for sure!

I think after running some comps tomorrow, I may or may not counter his offer....if I do, I'll offer $50K and see what happens I guess....Thanks for listening and for your words of encouragement everyone...Good Night!

KO

Well,

Just to update everyone, I called the seller back a little while ago to tell him that we felt like we needed to pass on purchasing his home.

My intention was to offer him offer him $45K (he want's $70K-I believe it's worth $50K) for the house, but as we got to talking, we got on the subject of what he spent on the re-hab of the house, and he stated that he put $50K in it, and I sincerely believe that he did.

I felt like I couldn't undercut what he put into fixing up this house, so I thanked him for his time, for meeting with us and showing us the house to begin with. I was transparent with him up front the whole time, told him I was an "investor" even though I don't know what I'm doing 100% yet, and that I was interested in the property as an investment. I've gained a little confidence in contacting and speaking with folks now, so I'm not deterred.

Once again, thanks to everyone for weighing in on the subject with your wisdom and experience, I SINCERELY AND TRULY APPRECIATED it!

My next project is trying to get a hold of the property owners 2 properties
down from me, they have acreage, and 2 mobile homes on it, and I understand they are DESPERATE to sell. One mobile home is livable, the other looks like junk (property has been vacant). Searched the tax records and the property is assessed at $36,530. Thinking of offering $20K!

Later,

KO

KO be careful with that one too remember mobile home go down in value very quickly just like automobiles.

Also, you cannot base your offer on tax records! They tend to be very inaccurate as far as the true value.

You need to find actual comps (what other similar properties have sold for) for the last 30-90 day and within 1/2 mile, if possible.

That was probably the smart choice. The sellers were guilty of spending way to much on renovation work for a house that's worth 40 - 45k. Then the numbers would work. The lease option was probably the only way the deal would have worked with the other numbers. Keep it up.

in most states, mobile homes are personal property and not real estate. Doesn't mean you can't make money buying and selling; just means it's a different game. (To be viewed as real estate in most states they have to be PERMANENTLY ATTACHED to the land)

Hi everybody,

My name is Ken of Carpentersville, IL. I need some of your advice here. It's regarding the house my parents purchased in July 2010. The property tax is about $4200/yr.

My question is "Can my parents get the senior citizen property tax discount now?" My mom is 65 years old and my dad is 63 years old. By the way, they both have their names on the property and they are permanent resident here. I literally know nothing about this as I am totally green and fresh in REI.

I welcome any idea and advice from anyone..many Thanks in advance!

Ken

Yes, assuming your county offers the discount.

I would have helped you more but you were too lazy to complete your profile.

Hi..I have just completed my profile. Also after I posted my notes yesterday, I have searched through some website and found some useful info about the property tax for senior citizen. However I still appreciate any suggestion from you.

Thanks Bill and have a nice day!

Kenneth

From what I know, your city is in Kane County. you can go to their website at;

http://www.kanecountyassessments.org/SeniorExempt.htm

and get the exemption form for your parents in a .pdf format. They also have a phone number listed to call for questions. Assuming that all counties deal with the senior exemption in the same manner, only one of the parents need to be 65 to get the exemption. However, counties sometimes have a little leeway in the application of the law and may treat it differently. The best advice is to call the number. Hope this helps.

I am appreciative for your effort in finding the info that I need. This will definitely informative and helpful. I will call the county tomorrow morning.

One more thing..may I ask for your opinion about the Professional Marketing International (PMI) coaching course? Is it really an effective tool for a new beginner in REI like me? I am considering of joining them.

Your opinion on this is greatly appreciated. Thanks again and have a great evening!

Kenneth

Hello all -

It has been a little while since I last posted about walking away from my "1st potential deal".

Though I live in Houston, I have been working up here in Michigan on an extremely lengthy pipeline inspection project, and time is very little and precious. Funny though, when you're highly motivated about doing something you really want to do, you will find a way to DO IT!!

Well, my wife and I recieved word today from our broker that our bid had been accepted on a property that was bank owned! We found this property online and it was listed as a foreclosure and owned by the bank, and they had it listed for $91,000. We had previously looked at the property in person (as well as others) and this is a beach style home on stilts, built in '82, 1540sq ft,3br,2bth. the 4th room is a utility/washer dryer area. The FMV is approx $117,000. By the time we had gotten in touch with the bank, the selling price was not $91K, but at $49,500! By the time we got with our broker to submit a bid, the price lowered again to $39,500! The house is in need of repairs, maybe $15-20K? We submitted our bid of $35,000, and two weeks later, the bank accepted our offer. They counter offered back to us once throughout the process, which we rejected and stayed firm with our offer. Our broker had let us know at the point of the counter offer, there were no other bids on the table!
I got my mother-in-law to be our hard money lender for this deal, because we needed a proof of funds letter to go with the bid submittal. My plan is after getting the paperwork squared away, to borrow against the equity in the house and pay Mom-in-law back plus interest, (hoping to be able to use her again)and use the rest to fix the house up and make her rent ready for now, and flip later on down the road.
I plan on borrowing only $60K, and I can see already that it will have to be an equity loan? I want to be able to get my Mom-in-law back her money as quickly as possible, as she was nervous to begin with about the whole deal. I hope i did good on this, it feels good anyway. I'm just so anxious to get something going, you know? The fear of messing up is constantly there, so after reading DeaN'S book for the 2ND time, I said the the heck with it and told the wife, let's do it! What do you veteran's think? Was this a good deal?

Good deal KO! That sounds like an excellent deal. Have you had the opportunity to check the COMPS? I'm sure everything will workout for you...just continue to keep us posted with any and all updates.

Sorry for not responding sooner....

To be totally honest with you, I did not run comps on the property partly because I'm not sure I know how properly, and also because I plan on keeping the property for myself as rental income. I'm away from home working 6 days a week, 12 hours a day, and trying to learn this by trial and error as I go!
I forgot to mention that this property is on 1 acre of land, it is literally two blocks away from where I live. I feel I know my own neighborhood pretty good as far as property values, and this will make it easy for my wife and I to work on.
Do you guys have a good solid method for checking your comps? I mean other than running to your courthouse?
My next strategy is to try and see if I can find a killer deal, lock it up, and assign it to someone else. I feel that's the only way to raise some capital for start up costs like a website, business cards, flyers, etc.