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REAL ESTATE Potential rehab deal - please help evaluate

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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
162
81
Hi all,

I came across a listing on craigslist today and called the owner. Its a gutted home listed for $32,500. The owner bought it as a foreclosure and was prepared to do the rehab, but cut himself too thin on the 2 other deals that he is working on and claims not to have the funds to take on the project. Not sure whether or not this is true, but its what he told me. He just put it on craigslist yesterday and is not planning to put it on the MLS. He said yesterday he was going to sell it, today he kind of wants to keep it. (Sales strategy perhaps...)

Its a long and narrow home, with a bit of a tricky layout. 900 square feet and 2 bedrooms. The owner estimates it will take about $40k to rehab the home and it needs new HVAC systems, new furnace, duct work and a new electrical panel. I will obviously need to verify the costs.

From what I could find in comps, the cheapest house that has sold recently in the neighborhood is $140k. Other comps from last week:

1 block away $150,100
1 block the other way $196,000
2 blocks away $216,000

This is obviously a big rehab and something I would need to partner on. I was thinking of contacting "my mentor" (http://www.thefastlanetomillions.com/general-business-discussion/24403-how-do-i-find-mentor.html) and seeing if he may be interested in partnering on the deal.

I have to leave town on Wed and won't be back until Saturday (work trip that is unavoidable), but my thought was to drive by tomorrow, then call my potential partner in the afternoon and get his take.

I'm hesitant to lock it into contract without having a better idea of the costs, but I don't have anyone I trust to do that yet, so I'd be relying on my partner. I'm totally fine giving up most of the deal to the partner as I alluded to in my earlier post, as this might be a good chance to work with him on something and bring in a little money as well.

Anything I'm not thinking about? What am I missing?
 

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Bilgefisher

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Read Millionaire Fastlane
Aug 29, 2007
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Aurora, Co
Has he gotten a bunch of other offers? In my area (assuming the numbers are all correct) rehabber would be jumping all over this deal. Seems to me he could wholesale this for a bit more then his asking. Might be missing some details.
 
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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
162
81
Thanks for the reply. He picked it up as a foreclosure with the intention of rehabbing it. So I think by selling it now, he's essentially wholesaling it. I didn't ask, but would guess he picked it up for less than he's selling it for.
What other questions should I ask?

EDIT: Forgot to add - he works full time at another job. Said he posted last night (when I saw it) and has gotten several phone calls about it today. No offers though.
 

Russ H

Gold Contributor
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Speedway Pass
Jul 25, 2007
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Napa Valley, CA
A. Anyone who lists on craigslist, and tells you one day they're gonna sell, and the next they're not, you only have one response: "Well, keep my number in case you change your mind" (or, better yet, email them so they have your email addy). But don't waste your time.

B. Anyone who has more than one rehab and has another full time job is a bit koo-koo. Unless they've had dozens of other rehabs-- in which case he's hiding some major problems that he thought he could fix for less, but was wrong.

Those are totally my opinion. I could be very wrong.

Oh, and no need to do a first drive by-- just use the street view on Google maps (assuming you have the address). Also, see if other repos/etc are on redfin.com (redfin may not work in your area, not sure).

Google maps is great-- you can virtually "drive" around the neighborhood-- also looking at those other comp houses. When I've done that, sometimes, I can see a BIG difference in the other houses (ie, they're much better, on bigger lots, etc).

-Russ H.
 
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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
162
81
A. Anyone who lists on craigslist, and tells you one day they're gonna sell, and the next they're not, you only have one response: "Well, keep my number in case you change your mind" (or, better yet, email them so they have your email addy). But don't waste your time.

B. Anyone who has more than one rehab and has another full time job is a bit koo-koo. Unless they've had dozens of other rehabs-- in which case he's hiding some major problems that he thought he could fix for less, but was wrong.

Those are totally my opinion. I could be very wrong.

Oh, and no need to do a first drive by-- just use the street view on Google maps (assuming you have the address). Also, see if other repos/etc are on redfin.com (redfin may not work in your area, not sure).

Google maps is great-- you can virtually "drive" around the neighborhood-- also looking at those other comp houses. When I've done that, sometimes, I can see a BIG difference in the other houses (ie, they're much better, on bigger lots, etc).

-Russ H.
Why does the seller being a bit "off" alter the fact that this might a good deal?

Thanks for the Google Maps idea - didn't think of that.

Best, Sid23
 

kwerner

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Oct 4, 2007
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Here's an idea for you Sid:

If you're pretty certain on the comps, call the guy up, tell him you want to take a look at the property and hire a general contractor to do a walk-through with you. The GC should be able to tell you if there are any structural / major issues with the property that would make it a deal-breaker and he could probably give you a ballpark idea of how much it's going to cost / how much time it's going to take to finish the project.

Once you have your rehab estimate together, tie up the property with a contract that allows you to assign the deal to another buyer. You may want to run this idea by him, just to fill him in on what your intent is, then again you may not; you're choice.

After tying up the deal you could start calling the other investors in the area - shop the deal to them.

By assigning the deal, all you're risking is your earnest money deposit and basically you're wholesaling it to someone else - maybe collect $3,000 - $5,000 for your effort. And if you don't have the funds or time to rehab it yourself, maybe this is the best strategy at the moment.

HTH.
 

EastWind

Bronze Contributor
Oct 31, 2009
685
200
69
USA
The problem I have with you is that you are working out this deal in your mind using the owner's estimate of $40k. How do you know it won't require $120k? have you inspected it? do you know about the structural integrity? any leins on it? don't take the owner's word, people will lie out their a$$ just to make a sale. Use the comps of the cheapest house that has sold, and if the house is not bigger/better than that cheaper house. even reduce the comp. Play it safe!
 
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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
162
81
EastWind,

Thanks for your comments. I agree that NOTHING can be done until ownership/liens and rehab costs are verified. I worked my network this morning and got the recommendation of a good rehab contractor and I'm going to meet him at the house on Saturday for a walk thru.

Do you know how I go about checking title/ensuring property is free of liens? Another issue is that the current owner bought it as a foreclosure and in my state there is a redemption period.

Thanks for your thoughts. Much appreciated!
 

EastWind

Bronze Contributor
Oct 31, 2009
685
200
69
USA
EastWind,

Thanks for your comments. I agree that NOTHING can be done until ownership/liens and rehab costs are verified. I worked my network this morning and got the recommendation of a good rehab contractor and I'm going to meet him at the house on Saturday for a walk thru.

Do you know how I go about checking title/ensuring property is free of liens? Another issue is that the current owner bought it as a foreclosure and in my state there is a redemption period.

Thanks for your thoughts. Much appreciated!
I honestly don't know. I don't deal much with real estate. My only real estate experiences have been buying a house to personally live in. The last one I bought, I bought a REO. As far as foreclosure is concerned, REO is all I dare buy because I know the banks will handle the liens and the redemption period is over. Russ and others who have invested in the real estate field will know much better. Good luck!
 

kwerner

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Oct 4, 2007
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Do you know how I go about checking title/ensuring property is free of liens? Another issue is that the current owner bought it as a foreclosure and in my state there is a redemption period.

There's a couple different ways you can do this:

1) Get an O&E (owners and encumbrances) from a title company - this is basically a preliminary title search, not a full search, but it should give you enough info in order to make a decision to proceed or not.

2) Do a quick title seach yourself - you can do this in most counties through their Register of Deeds office. (It may be online, if so, all the easier.)


Also, if it's a post-foreclosure property, but in the redemption period stage, I would check the courthouse records to see how much time is left on the redemption period. Typically when a property is in the redemption period, in order to take possession of it you're going to have to get a Quit Claim Deed from the owner and make up the full amount of the price it went to Sheriff's Sale / Auction for, plus additional interest charges (at least that's how it works in my state (also a redemption period state)).

What state are you in BTW?
 
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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
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What state are you in BTW?
Minnesota

thanks for all the info
 

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Cat Man Du

Contributor
Jul 30, 2007
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Find out...what he paid for it! That will give you the right info for bargaining. Sounds like he is a FLIPPER.
 

kwerner

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Oct 4, 2007
1,399
263
118
Minnesota
Okay, I believe Minnesota has a 6 month redemption period (you'll want to double check this though), that's the main reason I was asking - to know how much time you have to work out the deal.

You should be able to verify how much time is left in the redemption period by either:

1) Checking the records at the courthouse
2) Calling the foreclosing attorney's office - they may or may not be able to discuss it with you though

Another thing you'll want to find out is if junior liens can come back during the redemption period in your state (in my state they're wiped out - not sure what the laws are in yours though). That could be a big deal too.

...Ummm, that's about all I can think of at the moment.

Good luck!
 

rcardin

Contributor
Oct 30, 2007
512
47
32
Arlington, TX
Just my opinion, but if it is a 900 sq ft house I am guessing it is a 3/1 maybe a 3/2 with very small bedrooms. Pier and beam foundation?
For 40k in rehab you could just about bulldoze it and build a steel building and finish it out. Short of foundation problems I can't see any rehab going above 15k. It all depends on how much time you have to oversee the project.
 

hatterasguy

Bronze Contributor
Jul 29, 2008
2,090
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If your numbers are right their should be offers coming in left and right, investors work fast I'd try to have a deal signed before the day was done if it was me.

Go pull the title yourself, you need to learn how to do that if you want to research these quickly. Its no replacement for an attorney, but you will be able to find most problems if their are any.

You also need to pull any building department or P&Z files this property may have. If their are problems they will be in those files.

Next find someone who knows what they are looking at and go look at the place. Learn as much as you can from them so you can start to do it yourself. $40k is high, if that number is correct its pretty much a tear down. But that might be ok, work is fine as long as your making money.

If your comps are accurite your margin is good on this deal. Lots of other investors should be coming around like sharks, if they are not their is a big problem and they know something you don't.
 
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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
162
81
Rehab costs were way too high (went thru with a GC) and previous owner still had 5 months to redeem.

Took a pass. Not sure if he ever sold it or not.
 

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