Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
djbusch

First Deal?

Recommended Posts

I finally spoke to the sellers I've been e-mailing back and forth for the past 2 weeks. I'm pretty sure I botched the call beyond salvage, but here's what I came away with:

 

They say:

  • The home is worth $175k (county property tax records estimate it's worth $163.8k)
  • They have around $10k in equity (thin, I know)
  • Their monthly payment is $1240

They're worried about paying 2 mortgage payments, but as I mentioned in another post, i can't afford to cover their $1240 for even a single month...

 

Given the circumstances, I don't see the profit margin for a SLO here. If I collect 5% - 8% in option money from a t/b (which works out to $5k - $9k), I either have to give it to the seller or get them to agree to eat their equity. Am I figuring this wrong?

 

What I think might work would be a CA, where the seller agrees to sell at $170k, $1250 per month with a 5-year option and I assign it for $3-5k.

 

I'm very gun shy about taking someone else's payments on after the outcome of my last "deal", in which I burned through 2 t/b's in 4 months and had to let the house go back to the original owner. Is there something in this situation that I'm missing?

Share this post


Link to post
Share on other sites

If i were you I would do a few CA's to build reserves/cash flow before taking on a SLO. How did you come up with the market value for sale and rent? Typically you can sell and rent for a higher price because of the option and offer a rent credit to motivate them to go through with the purchase.

Share this post


Link to post
Share on other sites

David, definitely not enough fat there to be in the middle of the deal. In fact, depending upon the true value, it may be too thin for a CA. But first things first: what's it worth? The sellers say $175K, tax records say $164K. Neither is necessarily accurate. Run the sales data and come up with the realistic value and then we'll know what we have here.

Likewise, what is the market rent for the house? Their monthly payment is irrelevant in determining rent.

Share this post


Link to post
Share on other sites

MC, I'm having some difficulty in coming up with comps on this property. I don't know any agents and (obviously) don't have access to the MLS for myself. Sites like Zillow seem to only have sales data that's a year old or more.

 

The average rent rate per square foot in the area of this home is $0.627, so this home should (theoretically) have a FMR of around $1,284.00. Wasn't there a rule not too long ago that FMR is roughly 1% of the FMV?

 

I'm thinking more and more that this deal isn't a deal at all, but the sellers seem motivated. If I could find a way to bring their asking price down...it may still be too thin. :unsure:

Share this post


Link to post
Share on other sites

Ask the homeowner where they pulled their asking price from. Appraisal? Agent's analysis? Out of the air? Without knowing the FMV you can't proceed. Have you considered one of the online sites that charge a fee? Or try telling the homeowner that your sales data isn't supporting their's, and suggest they get a local Agent to give them a free market analysis.

Share this post


Link to post
Share on other sites

Update:

 

I contacted the seller yesterday and asked her to obtain a CMA from her friendly neighborhood agent. She responded with "we just had an analysis done in March, it's a book. Do you want it?" As far as I know, comps should be a page, maybe 2. Right? Wrong?

 

Anyway, I told her March is too far in the past to accurately estimate her home's value, after which she exclaimed that she "doesn't want to take less than $169,900!" - Red flags, they are a-shootin' up in my mind, yessirree...

 

So here's where I am with the deal: I've drafted a short offer, $169.9k, $1,250 per month, 60 month option, $1 option money, $500 rent credit. At this point, I'd love nothing more than for this lady to tell me to get lost. However, there is still the obvious signs of motivation she exhibited just a couple days ago, which make it hard to let go of the deal.

 

So should I send the short offer? Should I just tell her I don't think the numbers are going to work and wish her luck in selling? I feel like I've already invested more time in this deal than I should have, and getting into a contract with these people is going to be financially hazardous for me.

 

Yeah, I'm pretty sure I know what I have to do. I just need a little validation. :blush:

Share this post


Link to post
Share on other sites

Never can understand why people trying to sell something get so ugly, when your just trying to figure out how to buy the house. I keep the door open and send out a short offer and let them sit on it. Also, why are you doing a 60 month term with a CA? Not sure most would want to wait that long to get their house sold.

Share this post


Link to post
Share on other sites

Hey David,

 

Yeah, and I WANNA be a millionaire when I wake in the morning---that would be Tuesday, August 7, 2012. ;) Please and thank you God!! We all have wannas and don't wannas.

 

What do the numbers allow. That's what I'm learning. But it's always easier to be objective about someone else's deal---right? :lol: :lol:

Share this post


Link to post
Share on other sites

Also, why are you doing a 60 month term with a CA? Not sure most would want to wait that long to get their house sold.

I hadn't thought of it that way. Just looking for the sweetest deal possible. If they won't budge on the price, the terms have to be attractive.

 

What do the numbers allow. That's what I'm learning. But it's always easier to be objective about someone else's deal---right? :lol: :lol:

I'm in the process of finding a friendly agent to pull some comps for me. I don't really have anything to offer or even promise them at this point, so I feel silly asking.

Share this post


Link to post
Share on other sites

Yes it is a juggling act between a good deal for the seller and a tenant/buyer. Comps are key so you know what kind of deal to put together. Starting I would follow the Naked Investor manual to the letter in putting deals together, because it works. Then after a few deals tweak things as needed to fit your specific market. All you can do is offer a deal that works for you and take it as far as you can; then it's up to the seller and their motivation to realize the value of what you are offering. Have a take-it or leave-it attitude and move on to the next seller & Short Offer.

Share this post


Link to post
Share on other sites

David, one reminder: we look for motivated sellers; don't become a motivated buyer in the process. Something I remind myself of on occasion.

The homeowner offered to let you have the CMA. Take it and analyze the numbers. March is only five months ago. At worst the CMA is a starting point to determine if the homeowner is realistic or dreaming.

The numbers will determin whether to approach the deal as a CA or a sandwich. Not her preferences, not yours. The numbers. If you go the CA route, it's a 12 month deal typically. If going the sandwich strategy, longer is better.

Regardless, at this point I want you to make an offer if for no other reason than you've gone this far and you need to see this through. That offer will be based solely on your due diligence. Like Steve said, have a take-it-or-leave-it attitude. A "no" today often turns into a "are you still interested in my house" three months down the road and they still have no buyers.

  • Like 1

Share this post


Link to post
Share on other sites

Excellent advice MC and Steve. I can't let my enthusiasm paint me into a corner. If the numbers don't support what the seller wants, they just don't.

 

I'll contact her today and ask if she can drop the CMA in the mail.

 

On an unrelated note, I'm increasing my craigslist marketing to include 2 nearby markets, plus all the FRBOs contained in all 3 markets. If I expect to get anywhere in this business, I need to get the phone (or e-mail) ringing. I can't afford cards, bandit signs or flyers at the moment, so craigslist will have to do.

  • Like 1

Share this post


Link to post
Share on other sites
On an unrelated note, I'm increasing my craigslist marketing to include 2 nearby markets, plus all the FRBOs contained in all 3 markets. If I expect to get anywhere in this business, I need to get the phone (or e-mail) ringing. I can't afford cards, bandit signs or flyers at the moment, so craigslist will have to do.
Excellent! Expanding your market area is a must to, as you say, get the phone ringing and emails flowing.

Share this post


Link to post
Share on other sites

×
×
  • Create New...