3 bed / 1 bath Brick Ranch with Basement & 2-Car Garage
As we talked about earlier in the week, we spent the good part of this past Saturday putting together the numbers on a rehab in Waterford, Michigan, and the numbers looked good. The property shown in the picture above is a great little 3 bed / 1 bath brick ranch with a full basement and 2-car garage that really just needs some updating. The house is solid from top to bottom with no structural issues and the roof is great. Everything is telling us this is a great little property, and so we submitted the offer on Saturday night.
Since then we’ve been back and forth with the seller, and right now we’re at a bit of a stalemate. Originally we had planned to put the property under contract with a financing contingency because we were planning to fund the deal through a hard money lender. With the analysis we have put together I am confident that we could obtain the funding, but I cannot be 100% certain, so we need the financing contingency. This is a major issue for the seller, and they are requesting a $5000 deposit with no contingencies on the offer. In addition to this, they are asking that we close in 14 days.
Unfortunately, we’re not in a position to put the property under contract right now, but if we are able to locate private funding, we could easily snatch this deal up and be off and running with the rehab.
Right now we’ve completed a full analysis of the property and we’re reviewing this analysis with a few private lenders. We don’t have the funding lined up just yet, so if you are interested in partnering with us on this deal, we would be happy to discuss the full details with you as well. For now, here is a summary of the numbers:
For those that don’t know, we’re right in the middle of purchasing a property in West Bloomfield that we are planning to rehab. We have the property under contract, and we are currently within our inspection period that is written into the contract. Over the weekend we had bids come back from two of our contractors, and the news is not good. Originally we estimated about $25,000 in repairs to the property, but the bids coming back are closer to $40,000.
Unfortunately, this overrun in the repair estimates is not something we can absorb into our numbers. So, we spoke with the seller yesterday to present the bad news and requested we be released from the deal. We have protected ourselves with our 21 day inspection clause, so we’re not at risk to lose our earnest money deposit, but this is obviously not how we wanted this deal to turn out. At this point the only way we see this deal moving forward is if the seller can come down on their purchase price. We have requested a $15,000 reduction in purchase price, but we’re not real confident this is going to happen.
Today is Day 54 in our drive for $60,000 in 60 days through real estate investing. As we discussed yesterday we have gotten a property under contract that is a great rehab project. Today we are going to share with you our plan for due diligence on this property so we can bring it to close.
The Contract
First, let’s talk about the contract and how we have this setup. The closing date is state to be on or before September 15th, 2010. As we mentioned in Day 42 – Anatomy of A Deal – Part 8 Closing The Deal, we are making a checklist of all the items we need to do to bring this deal to a close. Here is our list:
Send contract to title company
Order title commitment/insurance
Obtain financing
Inspect property
Obtain repair estimates
The way we have structured our contract, we have one main clause that will protect us in the event that we find something in our due diligence that we are not currently accounting for. The clause I am referring to gives us a 21 day period to complete inspections and obtain repair estimates on the property. If these estimates do not align with our assumptions, we have the right to exit the contract and get a full refund of our earnest money deposit.
So, we have a plan in place to act on each of the items listed above. Some of the items like sending the contract in and obtaining title insurance are pretty straightforward. These are things we will kickoff immediately with a simple phone call to the title company. The other items we will discuss in more detail below.
Obtain Financing
On Day 39 – Anatomy of A Deal – Part 7 Financing the Deal, we talked about all the different methods available to finance deals. For this particular deal, we are going to look to a private investor and/or a hard money lender to fully fund the purchase and repairs on the property. To present our case to these potential lenders, we have created a business plan for this project. This plan will include the following items:
Project financial analysis including all costs and expected profit
Detailed information and pictures about the property
Initial repair estimates
Market analysis of properties that have sold & properties currently for sale (Comps)
This package did take about 8 hours to put together, but it really serves two purposes. First, and most importantly, it will serve as a great tool to explain the project and solicit funding. It adds instant credibility to anyone we speak with, and really shows that we have done our homework on the property. Additionally, this will serve as a great template for us when we do additional rehab deals in the future. It should take less than half the time to put this information together again, so we really think it was time well spent putting it together. Now, I will also add that you really should be putting together this level of detail on your deals. Going through this process will ensure that you are buying the property at the right price and have considered every angle.
Inspect The Property
We have completed our own walk-through on the property and we have generated a list of items that need to be repaired on the property. The purpose of the inspection is to determine if there is anything we have missed. Currently we are expecting the following repairs:
Replace Roof / Repair Gutters
Remediate Mold / Repair Drywall
Replace Front Porch
Update Kitchen
Replace Carpet / Floors
Paint Interior
Minor Landscaping
The inspection will serve to confirm these repairs are needed and also alert us to any additional repairs that might be needed so we can account for those.
Obtain Repair Estimates
Immediately after we have the inspection completed, we will bring contractors in to provide estimates on the repairs. Currently we have budgeted $25,000 for the repairs on the property and we feel this is a conservative estimate, but we need to confirm our numbers. We will also be confirming any additional items that come from the home inspection.
Today is Day 53 in our drive for $60,000 in 60 days through real estate investing, and we received some awesome news today! Our offer on the property in West Bloomfield has been accepted! This property is in need of significant rehab, and right now, our conservative estimates show that the deal will net us about $24,000. Here’s a summary of our analysis:
Purchase Price: 28,400
Purchase Costs: $3,800
Rehab Costs: $25,000
Holding Costs: $6,300
Selling Costs: $7500
Expected Sales Price: 95,000
POTENTIAL PROFIT: $24,000!!!
They have a saying in real estate:
You make your money when you buy!
From these numbers, we are extremely excited, and can’t wait to get started on this rehab. Of course we need to confirm the assumptions in our numbers, so we have many activities planned over the next couple weeks. Of course, our contract was written to allow us to complete these activities, and if our numbers are not confirmed we have the right to exit the deal. We think our numbers are conservative, so we’re confident that this will not happen, but if we uncover anything in the inspections that was not anticipated we are covered.
So, over the next week we have the following activities planned in an effort to confirm our numbers:
Bring inspectors in to review the property
Bring contractors in to gather estimates for the repairs
Speak with hard money lenders to fund the project
Begin marketing the property as a wholesale
This is our short list. You can probably gather that we have two exit strategies for the property that we are going to pursue. Our primary strategy will be the rehab of the property, and our secondary exit strategy will be to wholesale it. If you are interested in purchasing the property on as a wholesale or you are interested in participating in the financing of the project, please contact us.
Stay tuned, there will be a lot happening over the next week on this property. Of course we will keep you updated on our progress on this project, along with the other properties we are working on. Overall it has been a great day!!!
Today is Day 37 in our drive for $60,000 in 60 days through real estate investing. We have a number of deals working, and we wanted to update you on the status of each one of them. Some have gone very well, and others have not worked out as well. The good news is that we are continuing to learn every day.
2846 Cherry Rd, Highland, MI
This property is a 1050sq ft home that sits on 1.75 acres and is a definite rehab because the house is currently gutted. The nice thing about this property is that it has a lot of extra rehab materials included with the sale.
We have had this property under contract since July 9th, and our initial exit strategy for the property was to wholesale it as is, or rehab it ourselves. We put the property under contract for a very fair price to the seller, which made it very easy for them to say yes to our offer.
Since then we have employed our full sell that home fast marketing strategy and we have had a lot of interest in the property. We have received well over 20 calls on the property and have had about 8-10 people out to look at it.
From our buyer list, we have had 3 people who I would categorize as serious rehabbers out to look at the property, and the consensus is that the repairs are probably too much for the property to be profitable. We have confirmed this with our own contractor estimates.
Because of this, we have changed our plans on this property a little bit. We have spoken with the seller on a couple of occasions and discussed the feedback we are getting from the buyers. I think at this point, it is really going to take the right buyer to see the value in the property and it is going to have to be someone who is looking to do the repairs themselves and live in the house afterwards. We have a couple of people who fit this profile coming to look at the property in the next couple days, so we will see…
2080 Commonwealth, Auburn Hills, MI
This property is a duplex and is currently rented. Both units were completely rehabbed earlier this year, and at the price offered we’re estimating the property will cashflow at $371 per month. This is a great deal for any investor!
We put this property under contract on July 16, 2010, and we have used the same marketing strategy to market this property. To our surprise there hasn’t been near the amount of interest in this property as there has been on Cherry. We think the price point may be the main factor affecting this.
At this point we are going to try a few more things with this property. We are going to put up some more bandit signs for the property, send out more emails to our ever-expanding buyer list and put out some more online classified ads.
We will see what happens…
630 Lydia, Pontiac, MI
This property is a condo that is currently rented. The intriguing thing with this property is that the lease is structured giving the tenant the option to purchase the property within 5 years. They receive $100 per month towards a down payment, but they also pay the taxes, association fee, insurance and maintenance. This has a huge impact on the cashflow, and our analysis shows the property will cashflow almost $400 per month!
We have had this property under contract since July 31, and we plan to purchase and keep this property because the numbers are just too good. We will list it for sale, but we are going to be pretty stingy on the price because the cashflow is just too good to pass on!
Right now, we are just running through our due diligence on this property, but everything (including the financing) is looking good. So, hopefully we will have this one closed in the next two weeks…we’ll keep you posted.
Royal Oak Bungalow
We are still in negotiation on this property, but things seem to be stalling out. This property is a 4 bed / 2 bath bungalow and has a finished basement. It’s in a great area of Royal Oak, and we’re estimating it needs about $18k in repairs to make it a really nice home.
We submitted our initial offer on the property giving the seller two different purchase scenarios. One was simply a cash offer, and the other was a scenario where we would delay closing for 6 months and we would have the opportunity to go into the property, make the repairs and find a buyer…then close.
I just spoke to the seller yesterday about the offer, and he told me the offer is really too low for him, and he thinks that with minimal repairs (paint) he can get a much higher price.
At this point, we’re going to look a little closer at the comps we pulled by driving by them to get a better analysis of our after repair value. We have also discussed offering him a piece of the deal on the back side if we are able to sell the property for more than what our analysis showed. So this deal is not dead yet, but it’s definitely not looking that great…
Bloomfield Hills Ranch
This property seems to be fizzing out because we are simply too far away on price (about $150k) with the seller. This property is really intriguing because it is in a great area. There are literally homes on the same street that are valued at $1.5 million. The trouble is, this home is a 1300sq ft 3 bed/2 bath home with no basement. Everything else in the neighborhood is 2500sq ft plus and are quite frankly nicer homes.
For our analysis, we are showing that the property needs about $15k in repairs, but we really don’t think the home will sell for more than $158,000. The trouble is that the seller wants $200k and they’re being pretty firm on that price.
At this point, we have to let this one go because we are just too far away on price…maybe they’ll come around 6 months from now after they figure out that they’re priced too high…
Summary
So this is where we are at after 37 days. We’ve had a lot of activity and we’ve learned a tremendous amount just by attempting to execute these deals. We need to hustle if we’re going to make it to our goal of $60,000 in 60 days, but we’re trying…Stay Tuned!
3 bed / 1 bath Brick Ranch with Basement & 2-Car Garage
