Home Buying in New Haven>Question Details

Karen, Home Buyer in New Haven, CT

interested ina renovation property. house hs been stripped and vandalized. No pipes, furnace, radiators!

Asked by Karen, New Haven, CT Wed Mar 18, 2009

No furnace, no source of heat, all pipes gone, windows all broken. do we make offer on property only? 2007 assessmanet on land was 69000. House 69000. Comps are hard since neighborhood is good. Any suggestions or advice? Thanx in advance!

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Phil’s answer
Hi Karen, I am an active rehab-er in New Haven, so I know exactly what you want to do.. and that of course is MAKE A PROFIT. Like Dan said you need to know 3 figures: ARV, Repar Costs and Carrying Costs. Now it is crucial you get all those numbers accurate or you could spend the next 3 months working for free and losing thousands of dollars. Now a couple things you mentioned jump out at me:

1. 'do we make offer on property only?' - The answer is no. A) Because town assessments are often way out of tune with actual values B) because unless the building needs to be knocked down, the house has value.

2. 'comps are hard since neighborhood is good' - last time I checked the 'good' neighborhoods had all the easy comps b/c your bringing the home up to those standards. When you need comps for a 'bad' area, it is much more difficult b/c the remodeled home is wayy nicer than the rest of the street, and you have to prey that another remodeled home sold in the area recently.

Ok, so how do you find the After Repair Value? 'high end' Comps. .. that is .. the highest values the 'nice' houses are getting in the area. Pay attention to the size, condition, and time on market. I like to re-sell my rehabs at about the same price the 'nice' houses sold for or a little less.

How do you estimate repairs? Very difficult without experience, but here are a some ballpark costs I use on a 1200 sqft home. int doors $2000, kitchen $7500, bath $2500, siding $5500, roof, $4500, h/w floors $1500, paint $3000, furnace $2300-5000 (depend on type), electical/lights/outlets $1000, .. the rest hopefully you can figure out, or your welcome to ask me what I think is resonable. I always like to add $5000 to my est. for those unknowns and little things that later add up.

Carrying costs? This all depends on how you are financing the purchase and how much you are paying. Remember you will have 2 closings (buy + sell), mortgage points, interest, insurance, utilities, realtor commission when you sell, ect .. Using hard money on a purchase in the $100k range, this can add up to about $20k+.

Now how do you know that to pay?

ARV - Repairs - Carrying Costs = Best Offer (but start lower to try and negotiate and even better deal)

ex: ARV: $175,000, Repairs $35,000 , Carrying Cost $20k

$175k - $35k - $20k = 120k - $30k (Profit) = $90k (highest offer)

Now if the REO is listed at $150k. Your looking at the wrong house. Banks want offers in the 90% of asking value range. Unless its a very old listing or the property is worse than they thought, its likely a waste of time. However if they are asking $110k, you might be able to get them into your ballpark with the right offer(s). Keep in mind that not all REOs are profitable, and in fact most are not. But when one comes along, you must move FAST and hopefully have a cash/hard money offer with/little no inspections.

I'de love to help you find the right investment, buy low, est. repairs, sell FAST, and make sure your deal is profitable. (with no written Buyer Agent Agreement). If you would like assistance, I would be more than glad to help.
0 votes Thank Flag Link Fri Apr 3, 2009
Hi Karen,

You want to start with a good contractor you trust unless you are qualified to come up with a realistic repair cost. Then do your comps and determine the fair market value or After Repair Value (ARV) and subtract repair cost, closing and holding cost, commissions, etc., and then include a reasonable discount for the time, energy and potential errors in cost assumptions.

As a Commercial Realtor specializing in residential, multi-family and investment properties as well as an investor and active member of the Connecticut Real Estate Investors Association (CTREIA), I would be happy to help with any additional questions you may have. You can also visit my website for more resources at http://www.TimDenboHomes.com or my commercial site at http://www.KWREI.com.

Now is a great time to buy and to invest so congratulations on taking action!!!

Tim Denbo
0 votes Thank Flag Link Wed Mar 18, 2009
Hi Karen,
The best way to go about this is to figure out the ARV (After Repair Value), deduct repair costs and holding costs, then make an offer based on that. If you would like assistance with the process, I would be happy to help.
I am an active member of 3 Real Estate Investing Associations in CT, and work with investors and rehabbers on a regular basis. Let me know how I can be of assistence.
Web Reference: http://www.danrossre.com
0 votes Thank Flag Link Wed Mar 18, 2009
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