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jcjohnson7

Ready to make first offer

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I feel like the dog that caught the bus. :lol: Ok, so here's the deal. I spoke with a seller last night and he wants to go ahead and see what we can work out. I told him I would send him an e-mail with the short offer attached for him to look over and agree to, then we can schedule a time to meet at the property. However, I'm starting to question whether or not this is a doable deal or not. Here are the details--let me know what you guys think.

 

Listed FSBO @ $78000 (It's in a neighborhood with a mix of owners/renters)

Currently rented until Friday @ $800/month

His payments are just under $700/month to cover everything

 

Comps:

Yr. Built Sale Date Sq. Feet Sale Amt. Parking Material Total

Comp 1 1957 08/03/09 966 71,034 carport brick 71,534

Comp 2 1961 08/03/09 1,092 68,000 drive brick 68,000

Comp 3 1954 06/02/09 1,266 31,150 carport shingle 31,150

Comp 4 1952 08/11/09 1,027 60,000 drive brick 60,000

Comp 5 1957 08/05/09 1,302 74,691 garage brick 76,691

Comp 6

 

Subject 1956 06/24/09 1,344 NA drive NA brick NA 51,229

Today's Date 09/22/09 942 $ per Sq. Ft. 54.37 After Repair Value 73,078

 

So I came up with 73000 for the market value (assuming the tenants haven't destroyed it) He has someone coming out Saturday to clean the place up he said. He's also an out of town owner who had to rent it so he is motivated.

 

The rents for that neighborhood are between $650-750/month for a 3 bedroom (which his is). He has it rented for $800.

 

Now, I figured I might be able to get it leased with a 50% rent credit if we keep it at the 800/month. BUT that is $9600 over 24 months which has to be added to the price.

 

I figured $2000 for the option consideration because 3 months rent is $2400 and 3% of price is $2190. Maybe it's too low, I'm not sure.

 

So either I offer $84600-85000, which is too high for that neighborhood. OR I offer $61000 to 61400, which is way below what he is asking for it, but it is closer to the other comps in the neighborhood. He bought it for 77k. (Foreclosures killed that area)

 

I was thinking of listing it @ $73000 @ $750/month for 24 months.

$2400 option consideration. 50% rent credits totaling $9000 after 24 months.

 

Offer to seller would be $61000

 

Does this make sense? Let me know what you guys think.

 

Josh

 

P.S. I have a lot more questions but I just want to know what you all think.

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Josh, you need to get an offer with specifics in the hands of the homeowner. That offer needs to be based on your market analysis, which seems to be what you've done. There needs to be a middle ground. You can't give the homeowner everything he wants for the sake of getting him to go the deal. Doing so only gets you a property that you can't find any takers for. On the other hand, driving a hard bargain and low balling the homeowner will result in being shown the door.

Trust your judgement. It doesn't appear you have pulled your numbers out of the air. . .which is what many homeowners do. State your case and back it up with the sales data. Then be quiet and let's hear what he has to say. He's out of town and has a vacancy coming up. If he's reasonable and realistic, you should be able to reach an agreement.

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Josh, you need to get an offer with specifics in the hands of the homeowner. That offer needs to be based on your market analysis, which seems to be what you've done. There needs to be a middle ground. You can't give the homeowner everything he wants for the sake of getting him to go the deal. Doing so only gets you a property that you can't find any takers for. On the other hand, driving a hard bargain and low balling the homeowner will result in being shown the door.

Trust your judgement. It doesn't appear you have pulled your numbers out of the air. . .which is what many homeowners do. State your case and back it up with the sales data. Then be quiet and let's hear what he has to say. He's out of town and has a vacancy coming up. If he's reasonable and realistic, you should be able to reach an agreement.

 

 

That makes sense. Well, what I could do is offer the seller $70,000

List the property for $76,500 @ $750/month for 12 months

50% rent credit totaling $4,500 after 12 months

$2,000 option consideration

 

 

Having a shorter lease makes it a better deal price-wise for the tenant/buyer and the seller as a whole but it's not as much time to get their credit up to par. Do you think shortening the lease period would be a better deal for everyone?

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Josh, if you go less than 12 months on the lease, in all likelihood you will meet resistance from t/b's. They want time. In fact, if you can get the homeowner to go longer than a year, so much the better. Obviously, the rent credits would need to be adjusted. For example, 50% for 12 months, or 25% for 24 months.

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Josh, if you go less than 12 months on the lease, in all likelihood you will meet resistance from t/b's. They want time. In fact, if you can get the homeowner to go longer than a year, so much the better. Obviously, the rent credits would need to be adjusted. For example, 50% for 12 months, or 25% for 24 months.

 

 

I was just set on 50% because you said in your manual that it will move the property much faster. So you have had good success with 25%?

 

If I were to do that then I could offer the seller $70,000

List it @ $76,500 @ $750/month for 24 months

25% rent credits of $187.50/month totaling $4,500 after 24 months

$2000 option consideration

 

So when I fill out the Short Offer form, I should start the lease about 2 months from now?

How much maintenance do you generally ask the tenant/buyer to be responsible for when filling out the short offer?

The option period is the same length as the lease on a CA right?

How much option consideration do I put on the short offer because that is going from me to the seller so it is basically saying I'm giving him option consideration right?

Lots of questions, I know... :lol:

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Josh, the rent credits are a reflection of the local marketplace. If you were to be in a strong sellers market, where the sellers are receiving multiple offers in days, offering rent credits wouldn't be necessary. On the other hand, a buyers market like we're in now requires strong incentives to get a t/b interested.

That said, I start with 50% and go from there. Does 25% work? Sure, if you're extending the lease length. The total amount of rent credits isn't changed, but many t/b's like the luxury of extra time. Can't say I blame 'em.

 

So when I fill out the Short Offer form, I should start the lease about 2 months from now?
Depends upon the market and the property. How long do you think it wil realistically take to find your t/b?

 

How much maintenance do you generally ask the tenant/buyer to be responsible for when filling out the short offer?
If you're doing a CA, the agreement states that the t/b is responsible for all maintenance and repairs. Your short offer should reflect this.

 

The option period is the same length as the lease on a CA right?
Yes.

 

How much option consideration do I put on the short offer because that is going from me to the seller so it is basically saying I'm giving him option consideration right?
$1. . .$5. Remember, this is the amount of option consideration you are paying the homeowner to make the option a legally binding agreement. This is not the amount of option money you are collecting from the t/b. That amount is reflected in the CA Assignment Agreement.

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So should I not tell him that I'm selling it for more money to include the option consideration and the rent credits? All he needs to know is what he's getting for it?

 

Does anyone ever question why you put such a low dollar figure on the short offer?

 

I honestly don't know how long it will take to find a tenant/buyer. That's why I'm planning on marketing the thing like crazy. You said in your manual that we should always put a "right to cancel" in any agreement that we do. I didn't see one in any of the CA agreements that I have. Do I need to add one?

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The only figures the homeowner need be concerned with are the rent he'll be receiving and the net sales at closing that he will receive. That's his reality and bottom line, and that's what you need to keep his attention focused on. If any homeowner is concerned that you're making a buck on the deal, tell him you're not a church and then move on to someone more realistic.

In the CA Residential Lease Agreement, your right to cancel is on Page 2, paragraph 8.

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The only figures the homeowner need be concerned with are the rent he'll be receiving and the net sales at closing that he will receive. That's his reality and bottom line, and that's what you need to keep his attention focused on. If any homeowner is concerned that you're making a buck on the deal, tell him you're not a church and then move on to someone more realistic.

In the CA Residential Lease Agreement, your right to cancel is on Page 2, paragraph 8.

 

 

Ok good deal. Sorry, I just found that cancellation paragraph. My mind is moving too fast. By the way, am I supposed to put the total price (net price +rent credits + option consideration) on line 1c in the Option to Purchase Agreement? If I advertise the home for the total price and then a tenant/buyer has more to put down than the option consideration I had projected, how do I work that into the total price if I only have enough for the price I was planning on getting? Does that make sense? $76,500 has room for $70,000 + $4,500(rent credits) + $2,000(option consideration) Do I need to advertise my price high (maybe a couple thousand more?) to make room for that sort of thing?

 

And if that is the case then the full purchase price might end up being lower than what I put on the option to purchase.

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By the way, am I supposed to put the total price (net price +rent credits + option consideration) on line 1c in the Option to Purchase Agreement?
Yes. The price you plan on advertising the house for should be reflected there.

 

If the amount of option consideration you receive varies from what you originally expected, then the homeowner's net price will too. If you receive, say, $1K less than expected, if you decide to go ahead with the deal then the homeowner's net increases by that same $1K. He won't object.

On the other hand, suppose the t/b surprises you and puts down $1K more? Then the homeowner's net decreases by $1K. Will he mind? Possibly, but in my experience probably not. Remember, they want the property sold. In today's real estate markets, not too many homeowners are going to walk away from a deal for a grand. And if he does, you can always pass along that extra option money to him. Gets the deal done and you still received your take as expected.

One suggestion: stop analyzing and start doing! And I say this with love. :D

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Yeah, yeah, I know... :D Just one more question though. Do I put the total purchase price on the short offer or the net price the seller is receiving?

 

The expiration date on the short offer, what kind of time frame do we usually look at putting for that?

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Net price to the seller.

And I like to give the homeowner approx 24 hours to get back to me with their decision. If they're serious, that's more than enough time.

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Net price to the seller.

And I like to give the homeowner approx 24 hours to get back to me with their decision. If they're serious, that's more than enough time.

 

 

Ok cool. We'll see what happens...Thanks for your help! You tha man MC :D

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