Advice For Structuring A Deal

[twashing]

Hi All,



I'm working on a deal for a sale of a distressed Townhouse, somewhere in Ontario's Golden Horseshoe. Based on comparable MLS Listings, I guage the market value to be between $200k - $250k. Monthly rents in the area go from $1100 - $1500. I'm currently going through due diligence ( i. title check, ii. verification of no other liens, mortgages, etc).



But I wanted to ask your advice. What (if any) other checks are needed for a deal like this ? I think this is a good opportunity for a wholesale deal? Does that sound right?





Thanks

Tim

 

[invst4profit]

I personally do not see any way to structure this deal to work for a future investor unless they can purchase it at a ARV under $180000 or the rents could be raised considerably. With possible rents at a max of $1500 for the area the rent to purchase ratio is way out of whack.

As a investor I would probably make an offer in the $150000 range, depending or repair costs, and be prepared to walk away.

 

[twashing]

Yes, we were looking at a significant discount as well. Ok, thanks for that.



Tim

 

[Thomas Beyer]

[quote user=twashing]between $200k - $250k.
That is too wide a range.



You must know exactly what this property is worth, within +/- $5000. If you do not know that you need to do more DD (due diligence) on the house and the area.



You have to become a specialist, both an area specialist and a property type specialist.



You must know if

• that same TH, with one more BR would be $12,000 or $18,000 more,
• the basement is not finished it is worth $10,000 or $25,000 less than the same TH with a finished basement.
• the TH facing south, compared to one facing north, is worth $6000 more or less.
  
  this TH, 4 blocks further East (or W, S, N) is worth $5000 more or $13,000 less.
  
  a TH with 3 bathrooms is worth $5000 more or $12,000 more than the same with only 2 bathrooms.
  etc.

You also must be able to judge renovation costs, for a flip or a rental.



Ditto on rent .. a range of $1100 to $1500 is far too wide. You must know within $50 what the rent is in that house in its current condition, or if you can get $100 more with a very modest $4000 paint and carpet upgrade, or $250 more with a more elaborate $15,000 upgrade that includes kitchen and bathrooms.



Yes, far more research is required. Far more !

 

[TangoWhiskey]

I fully second Thomas' post. the gap between 200 and 250 represents 25 % margin of error, if that range is even accurate. If you can't say within 10k, or say 5 % of purchase price, then you need to do more work and time in the market to be sure if its a deal. You may have a deal, but you can't know it, which means an assumption which means risk. Also, distressed almost always means renos of some kind, so you should be able to calculate the cost of repairs and ARV.



Also, wholesale is a VERY specific strategy that requires both excellent market knowledge and lots of buyer contacts to pull off repeatedly or even once. I've tried it, unsuccessfully. It sounds great but I've only once ever met someone who's done a wholesale (they sold me a deal actually, and then bought it back again from me after a 2 year hold!) and on this forum I've only ever heard of Thomas as doing one.



What you've presented has RISK written all over it from the little you've written.

 

[twashing]

All fair points. I appreciate the insights. I'll factor them in.



Cheers

Tim