Posted by Mike on January 05, 2003 at 22:57:00:
Greg, Thanks for the reply. I think the advice sounds reasonable. One thing: I was not offering a Lease Option, but an option to purchase, without being a tenant. Don’t know if this makes a difference in the strategy, but I agree that the 30% is too low since it is not a rehab. (By the way, t/b = tenant / buyer? Excuse the naive question!)
Thanks
Mike
First Deal Jitters - Help! - Posted by Mike
Posted by Mike on January 05, 2003 at 18:37:29:
Hi,
Love this site! I’m a newbie working on my first deal. Before I knew what was happening it was in my lap and now I’ve got to come up with some numbers.
I’ve got a 2 bdrm/1 bath house w/ owner financing, and the owners seem more motivated than they are letting on.
They’re asking $360,000 in a well to do neighborhood of Calif., where the average selling price is about $330,000, according to the local paper. There is a comparable house across the street being sold by a realty co. asking $285,000 (which is on the lower end, according to a realtor there). Both houses are in good shape, and “my” house is in good shape, needing only minimal work, some elec rewiring in a room attached to the garage. I told them I’d want to do an option to purchase, and they seem agreeable to it.I said I’d get back to them with a price, because I wasn’t sure about the numbers yet.
*What’s a fair asking price? I thought of asking 30% below market value, which puts it at $252,000. Does that sound ridiculous, or is that a good place to start?
*Terms are negotiable, glad to say. I think they will deal. So what do I do next? I feel like I’m dropping dishes all the way to the kitchen!
If I could get a reply from someone before tomorrow Monday, I’d appreciate it. (Sorry about the late notice, but this happened so fast I didn’t get to eat breakfast until dinner!LOL) Central Coast Mike
Re: First Deal Jitters - Help! - Posted by Greg (NJ)
Posted by Greg (NJ) on January 05, 2003 at 20:22:51:
Mike: “I thought of asking 30% below market value”. They will never go for this low price. This is an L/O deal you said, not a rehab. Get some comps, 1st. Then subtract 1/2 the realty commission they would normally pay, so about 3% (approx). Find out what homes are renting for in this price range. Take off a few hundred from this. Why they might say, well, you are an investor; you need to make a profit, right? Example:
These are not the exact numbers: GET COMPS AND CHECKS THE RENTS 1ST!!
Agree to pay sellers 330k when and if THE Option is exercised. Charge 350k to t/b, if and when they exercise. Remember you can?t charge the T/b more the it will apprise for. You make more money on the back end of AN L/O, but keep in mind 60 or so percent never exercise the option. You will be making an option fee of between 1 and 3 % upfront. This will be credited to your T/B IF they buy, don’t worry they most likely will not. Then you are making cash on the spread between what you are paying the sellers as rent and what you are charging the t/b. Offering 30% below FMV on an L/O is suicide. Make your goal to do just one of these deals a month and after 20 months, you will just be loving life! Remember the key is don?t look for houses, look for motivated sellers, create a marketing plan to target the sellers and don?t insult them with too low offers. Good luck… Work the numbers…