Is This House a Deal or No Deal?

Posted on September 10, 2012 by

There is a house located in a working class neighborhood. The Realtor is offering it for $60,000. It is a 3/2 bath house in average condition, 10 years old and 1200 sq ft with a one car carport. Taxes are $950/year. Insurance is $850/year.

The repairs are quoted by a shade tree contractor for $9,500. This would get you paint inside and out, carpet, counter top, and door knobs. The roof is 10 years old, the hot water heater is 3 years old, and the bath room is 10 years old. I figure since owner does not recognize that the house smells like smoke and cat urine, the 3 cats must be smoking 2 packs day and using the whole house as a litter box. The house has a floor plan of a split foyer, average schools, and average shopping. You live 45 minutes from the house. You like your house and you are not moving. The houses in the subject house area are selling for about $59.16/ SQFT. The rents in the area are $ 875/ month. Your situation is you have $12,000 for a down payment, repairs, and everything.

What should you offer? To answer these questions…answer these questions. What is your exit strategy? How much cash do you have? How good looking are you? (This allows you to get more money) Do you know people how have cash?

First off this does not fit Home Buyers of GA business model so I would make an offer $28,500. I would pay cash (How boring!) I would wholesale it only.

Your exit strategy: Buy and Hold. The payments are $397.38/ mo PITI cash flow with vacancy rate 10%, management 10%, or $95.00/month. $950- $587.38= $287.62/mo cash flow. The total cash in the deal is $26,250 (Down payment $16,000 repairs $ 9,500 plus holding $750). The ROI is 13.1% cash on cash. This is why you need to get into the game! This why the foreign investors are coming to Atlanta. You don’t have this money, so this is not an option for you unless you get creative.

Your exit strategy: Lease Option. Same payments, same cash flow the difference is you get some of your money back faster let’s say $3,500 option fee. This changes the ROI to 27.2%. You have this money so this is an option for you! The house needs a lot of work so HBG would pass on this lease option opportunity. For a great Lease Option you need to get in clean… really clean …no repairs… just cleaning.

Your exit strategy: Buy, Fix and Sell. Chances of this working are slim. The price point and the After Repair Value is $70,000. You will do all of the work and lose money. But that is a discussion for another day. You don’t have enough money for this, so this is not an option for you! No private money lender in their right mind would fund this.

Your exit strategy: Buy, Fix and Hold. There is a loan program out there 203k program that will provide the funds as a first time home owner. Home Path has a program also (I did research on it and was able to find out you as an investor could use the program.) This allows you to buy it and rehab it with investor money. You can get the rehab money rolled into the loan. This might be an option for you!

Your exit strategy: Buy, Fix and Hold Using Hard Money. You don’t have enough money to make down payment and the repairs. The loan will not cover the total amount to do the deal.

For the investor who wants to get out of their job in the next 5 years, this is not a deal.

The offer to make this a deal is $28,500.

Russ HinerRuss Hiner is an active real estate investor, coach and mentor. Russ is currently the leader of the Atlanta REIA Creative Deal Structuring Group and Atlanta REIA Mastermind Group. Russ also teaches several workshops throughout the year on a variety of real estate investing topics such as Negotiations, Wholesaling 101, Wholesaling 401, Real Estate 101, Property Management and more.

Contact Russ Hiner


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