Posted by JoeKaiser on January 21, 2003 at 22:05:40:
There is no way anyone here can tell you whether or not this is a good deal. What’s something like that worth fixed up?
A few things experienced investors will see right off the bat:
(1) Fixer properties, like this, must be purchased well below fixed up value to make them work. Check your numbers carefully and don’t be fooled into thinking this fits into some “rule of thumb” calculation like 65% of fixed up value minus repairs. Trust me, it doesn’t. (2) Getting six people to say “okay” on a low ball deal on mom and dad’s home isn’t usually easy to do. (3) no agent . . . they’re too cheap to even list the thing - not a good sign. (4) “Great, Nice, Excellent” in their ad is overkill for a little junker 1 bedroom house. Trying way too hard here.
I’d poke around a bit with the person handling the thing and see what’s what, but I wouldn’t think there’s much, if anything, here.
Newspaper ad reads:
GREAT FIXER UPPER! 5 rooms and bath. Nice neighborhood. EXC rental property. $32,600.
I called up and the man who owned it (free and clear) passed away and there are 6 kids who now own the property. They just want to sell it and take out the cash. She acknowledged to me over the phone that there are some minor repairs to be done. She also mentioned there is currently 1 big bedroom but that it was originally 2 bedrooms and the studs are still there to put up sheetrock and make a second bedroom. I havent seen the inside yet but drove by and looks decent from the outside.
I was thinking I could lease option on the sell side having the buyer do all the fixing up. That seems like a good deal. Get money upfront, have them pay a rent guaranteed for 2 years and have a close price settled upfront. But not sure if this is a good strategy. My other concern is on the buy side. What would be a good strategy to use here?
How do I structure this deal to come out on the positive side on the backend? Is there a deal here? Thankyou.
I would personally be looking at something like this as a quick rehab, and sell retail. Joe does make a good point about rules of thumb but if you have a good market for sales and the rehab value is substantially over what you can get for the property why not? Something that I have been very successful with lately is asking the seller for 60 or even 90 days to close if you can get it, with early possession. You will have to buy insurance and pay for the repairs as well as utilities. A typical buiders risk policy for that lenght of time may run from $300 to $500. Clean up the outside,then list the property immediately, next do your inside repairs as quickly as possible. You now have up to ninety days to get the property resold. There are obviously other things to consider here but this is a great plan if all the other conditions are favorable. Drop me an email if you would like me to expound further as I feel I am boring other readers to tears by now. ciao! Oh yeah, I do have one rule of thumb on rehabs. Take your inflated estimate and add 50% to it, then double that whole thing and you will end the project on the money!