Recently, a property owner requested our help to immediately dispose of their vacant house. Our estimated value for a “normal” selling time of 90 days was about $200,000, with the completion of about $3,500 of minimal repairs. If they spent another $12,000, the Seller could expect to get in the range of $220,000 to $225,000. The Seller chose not to do the minimal repairs and rather, to place it on the market at a significantly lower, “fire sale” price. Of course, we did as the homeowner instructed, and we immediately received many offers, over 30, mostly investors.
In the end, they sold it when they wanted to, for an amount equal to or a bit more than the large national investors, or ibuyers. With the 30+ buyers they gained more confidence that they were getting the best price for an immediate sale, rather than dealing with just a couple of ibuyers.
So, in this case, what can the investor expect as a return on investment?
$186,000 purchase price + $1,000 approximate expense at closing = $187,000. As an investor the repairs/improvements, should cost less than the average homeowner and an investor should approach the higher end of the price range:
$187,000
Carrying Cost $3,000
Repair/Improvements $13,500
Closing Expenses $14,500
Total in it: $218,000
Selling price: $225,000
So, $7,000 on your $200,000 investment for three or four months. Notice no contingency line item, guess nothing ever goes wrong in real estate investing. =) Now, what if it’s rented out? $1,700/month rent, 5% vacancy rate; after taxes, insurance and HOA, before property management, maintenance and depreciation, your net is about $13,400/year.
For most real estate investors, this probably doesn’t look too exciting. Keep in mind though, that there was nearly a 10% spread between the highest and lowest offer. Of the 30+ offers, there were 4 that were very, very close to being high bid.
To get the higher returns, investors need to look for homes requiring more repairs or updates than the Subject property required. Or, they need to find a niche type property where they’re not competing with so many investors.
Even in the current seller’s market, there is still money to be made in the real estate investing; Though, it can be a little more challenging.
The next few posts will address niche type investor properties and other information important for investors.
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