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Thursday, February 24, 2005

Dammit!

My offer for House 11 has not been signed yet. The agent was on his way over to the seller's this morning when he got another offer - this one is also all cash with a price of $128,000. He's faxing me the offer to prove it's real and will give me a counter offer equal to it. If I accept it, the other offer will be in a backup position. Damn damn damn. If that contract was signed yesterday, I could have saved $8,000.

I'm still going ahead with this. I did some more research on comps and I think I can sell the place for a bit more than I thought. Not $8,000 more, but a couple thousand more.

This just proves how competitive the Phoenix market is.

6 comments:

Steve said...

Sorry to hear that, Shaun, but stick with what works for you. As I said in my blog a few days back, I had a fabulous HUD home I was salivating over with an offer of $118,500. Another investor bought it for $11,000 more. I could have offered about $5k more, but $11k would have had me negative after everything was settled.

Keep up the persistance - it's contagious!

Shaun said...

Yeah, I can handle the extra $8,000, but it still sucks :-) Anyway, the other buyers actually offered $132,000, but they have an agent, so the seller would need to pay about $4,000 in commission to him. So my $128,000 offer equals their $132,000 offer. Actually, I could have offered $127,600 since the other offer included the seller paying $400 for a home warrantee policy, which I am not buying. I let that slide. Bottom line is I think there is still room here for money to be made. So I only get a 37% ROI instead of 40% :-)

Bginvestor said...

Shaun,

I'm would be interested how you calculated your ROI.. thanks!

Shaun said...

Oh..sorry.. 37% and 40% were just numbers I plucked out of the air. The point was that my ROI would drop by maybe a couple points, but would still be pretty big.

Using some guesstimated numbers: total cost of buying the house, fixing it up, insuring it, paying escrow costs on the purchase and sale, and paying agent commissions on the sale, should be about $137,900. If I sell it for $149,900, then I have $12,000 profit. I plan on holding this property for two months (1 month for fix up, 1 to sell.) My ROI then is $12,000 / $137,900, which is 8.7% in 2 months. That translates to a yearly ROI of 52.2%. Had I not had to raise my bid by $8,000, my total costs would be $129,900, my profit would would be $20,000, the 2 month ROI would be 15.4%, giving a yearly ROI of 92.4%. Ok, so the extra 8 grand caused it to drop a bit more than a couple points. But I'll still take a 52% return anyday!

Michael said...

You might want to rethink your ROI figures. In the numbers you shared, you're appear to be planning to sell without a realtor at a premium. If it takes you 4 months (to buy, fix, sell and close), your ROI drops to 8.7 in 4 months, or 24% annually. Also, I'd suggest you make sure you allow for the unexpected which always comes up.

I just finished my fourth rehab and, without fail, it always costs me about 10-15% more than I planned for repairs and associated costs.

Shaun said...

The market here in Phoenix is crazy. I expect it will sell in no more than 2 months. Escrow for the purchase will be no more than 2 weeks and, actually, we are on track for a 1 week close now, assuming the title company can get the title search done in time. The sellers want out ASAP.

The last property I sold went for full price - which was slightly more than FMV. I can thank California investors flooding into this market for that.

Buying the house does not incur any commission costs to me. Selling the house incurs 4% commission costs - my agent will list for 1%. Those figures are included in my $137,900 figure for expenses:

$128,000 - house
$300 - home and termite inspection
$350 - 1 year insurance (the unused portion of which will be refunded to me when I sell, so most of this will come back to me)
$6,000 - commission when selling (4% of $149,900)
$2,500 - fix up costs
$750 - misc. title fees for buy and sell

Those add up to $137,900. Right now, the only unknowns are what the fix up costs will actually be and the exact amount of the title fees. I get a 30% discount on title fees and I got the $750 figure from looking at past sales I have done. There is no loan involved, so I don't have an appraisal fee, origination fee, or underwriting fee. There may be 1 or 2 months of property taxes I have to pay. 2 months taxes on this property comes to $152.

But you're right - there are always unexpected things. Check back here and see how it goes. I will be posting my final numbers when all is done. We'll see how close my estimate comes to the actual numbers.

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