Quick Turn question for those new and pro!

[tbarcier]

Ok all you new quick turn pros! I did not attend the bootcamp, although I intend to if it happens in ON. I have been following these posts and I am intriged to see what your opinion is on an "ugly house" I have had my eye on for months. A nice 1600 sf side split bungalow with attached garage and secondary suite in a very good area, however it is very dated and ugly inside. This first went on the market at the beginning of Jan 2009! The asking price was 249,900. Now it has been relisted twice and now the price sits at 228,000. It is vacant currently. There are 2 other "pretty houses" that are indentical splits and both listed for 254,900 and one of them just sold today for 249,900. What would you do?

 

[MarkKruse]

A professional flipper would be looking to get it for around the $175k range. (I`m assuming that the repairs are mostly cosmetic based on your "dated" description) That gives them room to fix up, holding costs, marketing, etc and still have a little profit.

So if the flipper wants to pay $175k, you of course have to get it cheaper to build in your own profit.

You have not mentioned any motivation by the seller. And we do not know how much they owe on the property. You`ll have to talk to them to get a feel for whether they are motivated enough to come down to your needed price.

 

[tbarcier]

No you are absolutly right. I have not spoke with the seller. I`m just curious to see what other people would do in this situation. It is interesting though. sitting on a vacant house and dropped the price 22 grand in Aug and still no sale. I would expect that the flippers out there have made offers. I know it was last sold for 139,000 in 2001. As far as whats owed now, good question. What do you think Mark, would you offer 165 and they try to assign for 10k? I like hearing all the different ideas, keeps my brain running as I love to learn.

 

[RedlineBrett]

You don`t have a big enough discount to flip.

Another way to gauge vendor motivation is to look at the frequency and size of the price reductions. You want to see several large reductions or no reductions and then a huge one. Shows that the seller is willing to consider drastic reductions from their asking price.

You are much more likely to get a discount from someone that has shown successive large reductions in their asking price than from someone that has come down by only 10k twice in 3 months. Why would they take your 165k rather than just reduce to $200k and see how they did?

 

[tbarcier]

Oh defiantly Brett, at 228 for sure not big enough. As far as I can tell it was just the on price reduction in Aug. There are some real nice homes there(I just drove by 5 min ago) and it is for sure vacant. I don`t even know if I will do anything on it, not know all the techniques, but it is so interesting to me to see what you guys are thinking.

 

[tbarcier]

Ok what about this? Say I get it for 170 and decide to reno and sell for 250. I`ve approached private lenders and they want me to have 25% down and pay for lawyers fees and another fee anywhere from 1000 to 3000. From what I have read this should be based on the ARV not on the purchase price. Do I need to find a lender familliar with this technique?

 

[Jeffrey2144]

Hi Thomas,

If you are trying to employ Ron LeGrand`s technique then you would need to first determine the seller`s motivation (the fact that the property is vacant is a good start). To do so you`ll need to answer the following questions:
[list type=decimal][*]What is the ARV (After Repair Value)? (approx. $245-$250K)[*]What is the asking price? (Currently $228K)[*]What does the seller owe on this property?Are their payments current or behind?Does the house need any repairs? (YES - How much $$$?)[/list type=decimal]
Based on these answers you will get a clearer picture of their TRUE motivation. If they owe $185K on the mortgage and are 2 payments behind then you should be asking them "If I make-up your 2 payments owing and take over the rest of your monthly payments will you sell me the house for what you owe on it (i.e. $185K)?"

If the seller is truly motivated then you just offered them the ability to "walk away" from their problems (and potentially foreclosure or even bankruptcy).

Next is to spend a bit of "borrowed" money (i.e. JV partner @ 10% or whatever) to get the property ready to sell with owner financing (c/o the current seller) or turn it into a Rent-To-Own whereby the monthly RTO payments you collect are greater then the mortgage payments you are making on behalf of the current seller.

All the while the seller carries the original mortgage and you simply get the monthly spread, initial option deposit and finally the difference it sale prices once the RTO deal is completed (i.e. 2-3 years later) as your profit.

Once you got this system figured out simply wash, rinse and repeat with other motivated sellers.

 

[tbarcier]

Thanks Jeff! It is in the works to find the answers to those questions.