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3Br/2Ba, 1787sqft Residence, 529sqft Garage, 3 acre lot
ARV: $200K
As-Is: $160
Est Repairs: $51K
PITI: $1,600
Amount of Arrearage: $3,200 (2months)
Mortgage Balance/Payoff Amount: $110,000
Appraisal District is showing the property value to be $239,700Seller believes house is worth $230K As-Is. $250-$300K ARV and house only needs $20K in repairs. Wants to walk away with $125K. Seller was working as an oilfield consultant, paying down the mortgage an extra $2-4K each month until he lost his job recently. He is now 2 months behind on his mortgage, claims he worked out a 4 month extension with the bank. Determining As-Is and ARV was tricky due to subject property being located in a semi-rural community called Greenwood south/southeast of Midland, TX. Property is 11mins/8.8miles from the nearest Walmart. I performed a 1 & 2 mile radius search around the property going back 12 months and came up with 3-4 similar comps out of 22 solds. Average figures for the radius search were $450K sales price, $177.73/sqft, 2,532sqft, 260 Days on Market, 1.19 Acres. The average days on market for the 3 ARV comps I’m presenting to the seller are 4days, 6days, and 136days.
Please let me know if I’m missing any information and let me hear all your suggestions for multiple offers you would make.
If the house is worth $230k but needs $51k in repairs, there is no deal here unless you can get the seller down to $100k.
What does the seller owe? Must not be much if he wants to walk away with $125k
This could be a highest bidder sale opportunity if the seller is realistic with the price they will get and you are willing to do the deal for a smaller profit. It depends on what the mortgage balance is.
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That seller-wannabee knows very well that the oil market has been in a 2-year price war with OPEC, and prices were cut in half. He also knows that a few days ago the largest oil discovery in 30 years was announced in Alaska. When that kicks in (with production to begin in a few years yet), the increased supply will put even more pressure on Midland economics. Here’s one report from Alaska:Massive Oil Discovery in Alaska Is Biggest Onshore Find in U.S. in 30 years
One clue to the hurting oil economy up there was this sentence:
“Things have gotten so bad that the Trans-Alaska Pipeline System is barely being used these days.”
Odds are that the tanking oil prices had everything to do with your seller-wannabee’s loss of job. What do you think that means for local real estate value forecasting for the Midland area — never mind what comps have been during that recent 2-year oil price war?
Any boom/bust oil patch economy is highly dependent on global trends, news and disasters.
–Dee
Interesting article Dee, thank you for that. You’re absolutely right, the depressed oil prices had everything to do with him losing his job…….that and his work ethic, or lack thereof. He’s been unemployed for nearly two years while companies are relocating workers from other areas, we’re seeing more hiring, and there’s apartments and hotels popping up throughout the area. Oil companies took a hit with this slump but they trim the fat when need be and technology is making production more efficient. Real estate has actually been very stable……..that’s not to say it’s still the seller’s market it was 4 years ago but it’s still very active.
I should have added the seller has a free and clear 2br/2ba mobile home he may be willing to throw in to sweeten the deal. . . .I’ll admit though, I’m still nervous about entering some sort of Master Lease situation out of fear I may not be able to find the right tenant soon enough or that a vacancies could turn a deal into a negative cashflow situation. Between the house and the mobile home I estimate ( very conservatively) I should be able to get $2,000/month in rent leaving me with $400 cashflow each month.
Good point Don. Last September I was in Las Vegas attending David Tilney’s property management seminar which included master leases. I found performance leases to be a very interesting concept. How would you convince a seller/owner to enter a performance lease? Or perhaps the proper question is where do you find the types of owners that are primed to enter these agreements? What’s in it for them? How would you handle their objections. All of the leads I’ve spoken with are only interested in cash, and they usually want way more than I’m willing to offer. I’ll eventually run into an owner who is open to a performance lease by way of the Law of Averages, however, I’d rather save time and go the targeted route if possible.
Hi Rafael,
A couple of thoughts here…..
One, you could provide the seller the comps you have (that support your value) to show him you are looking at real numbers. Your subject property certainly isn’t the same as new construction.
You can show him the typical transaction costs that he will encounter, no matter how else he sells his house.
Until he is willing to look at a realistic price/offer, it’s going to be difficult to do any type of deal.
Time has a way of changing expectations in a lot of these situations. Make sure you follow up with this seller. If he hasn’t had a job for two years, he hasn’t felt the financial need that he may need to do something yet, but he will at some point.
Ben
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One other thing (as Peter Falk as Columbo used to say)…. Rafael, you wrote in the first post that“He is now 2 months behind on his mortgage, claims he worked out a 4 month extension with the bank.”
1. Does the seller wannabee have any proof of that alleged agreement of extension?
2. Some banks have a lousy practice of telling such lies to their borrowers, and then doing a nasty foreclosure anyway.
Basing one’s plans on the most optimistic but undocumented forecast seems a bit dicey.
–Dee
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