I might have a new house! I don’t like putting the address in the article, where it will show up easily on a search. However, I want you to follow along and know the actual house, so take a look at its qPulic page. or its Zillow entry.
How I Found It
In late December 2022, my Realtor called me about a house that the owner wanted to sell fast. It was about to be listed by a co-worker in his office and was in bad shape. There was no way this house could qualify for a mortgage, and no homeowner would want to live in it. This is precisely what I’m looking for, so I jumped on it. I want to look at this house and make my offer before it gets listed for sale.
I sent my manager to check out the house, but the key provided would not open the doors. The agent told us that the seller wanted us to break in, but neither of my employees felt comfortable doing that. I decided I would do it, but the key worked on the side door when I got to the house. I quickly looked around but asked my manager to make the repair estimate. She makes a rough estimate we can use for negotiating, not a detailed punch list for a contractor to work from. This article will teach you how to make a repair list for an investment house.
The table below shows the numbers I am working with. Zillow did not have a property value for this address, so I used PropStream. This value is in line with what I know other houses in the neighborhood are selling for, so I am going with that value.
|After Repair Value (ARV)||$106,000|
If I purchase at the asking price, I will have invested $65,000 after I do the repairs needed to get the property rent ready. This is over my rule of never paying more than 50 times the rent for a rental house. I can’t pay the asking price for this house as a rental, so I offered $25,000 and agreed to waive the due diligence period and close in one week. The seller turned down my offer.
The agent suggested that I offer the full asking price but include a 14-day due diligence period so that I could get a detailed repair list. Hopefully, this repairs list would be less than my $30,000 estimate, and I could make the deal work. In the end, the detailed repair list is higher; it is $34,400, broken down as follows.
- $3000 – To repair the kitchen.
- $7,150 – A bid from a roofing company to replace the roof.
- $4,250 – A bid from a plumber to replace the stolen plumbing.
- $5,600 – A bid from a heating and air company to replace the stolen HVAC unit.
- $1,400 – A bid from a pest control company to treat the active termite infestation.
- $13,000 – the rest of the project, including painting and all new flooring.
After getting the repair estimate, I changed my offer to $23,000, but the seller rejected it. This house can’t work as a rental because it violates my 50 times the rent rule. However, the home is worth $106,000, so I could make this work as a flip. To flip the house, I need to do a higher level of renovation, which brings the total repair cost.
At this point, I am looking at this property as a flip. For a flip, I need to do a more expensive renovation to bring the total repair budget up to $40,000. My goal on a flip is to invest less than 70% of the after-repair value, which means I have to buy the house for less than $34,200. This house requires a lot of work and will tie up my capital for at least six months.
Under the due diligence provision, I ask the seller to make the repairs before closing. The seller refuses but says she will give us credit for the repairs. I respond, offering $25,000 (the same as my original offer), and the seller accepts.
Since an agent is involved, I have a contract. I usually do a handshake deal when there is no agent unless the seller insists on a contract. Now I need to get to closing without more problems.
Update: On January 26, I closed on Williams.