Eastside Deal of the Week

Eastside Deal of the Week

On Sunday evenings I search out the Eastside Value Buyer’s List – the best house values on the Eastside (east of Lake Washington across from Seattle).  On Fridays I pick out the single best value out of that list, visit the house, take 60+ photos, and report on the house to you.  I’m looking for something that starts out at a discount to market value and is in good condition, not needing lots of repairs.

Property Analysis

Next, I analyze the house as follows:

• I choose comparable sales within half a mile and selling within 180 days of similar age and size.  You hope to find at least 5 comparable sales.  This gives us an average price per square foot for the neighborhood.
• Multiply the neighborhood price/SF by the subject property’s square footage.  This gives us a target resale value.
• Check the resale value against the tax assessed value, Realist and Zillow estimates (two automatic valuation models), and the list of comparable sales.  I’ll adjust the resale value down, if it seems out of line versus any of these.

Bidding Strategy

Now, that we know the after-repair value, the rest of the analysis depends on your purpose in buying the house.  If you will live there, you can justify paying more than a flipper.  I would think about setting your opening bid as follows:

• 30% off list price – Pretty aggressive.  They may reject your bid without an answer.  You may occasionally get a whopping good deal.
• 20% off list price – Probably good enough to attract a counter offer.  You’ll learn how far they are willing to come down.
• 10% off list price – You should certainly get a counter offer, if not a signature at your offer price.
• $3K over full price – If you know there will be a multiple offer situation and you really want this property, sneak your first bid just over list price.  The other bidders are likely to start at list price.

A flipper can’t bid as high as an owner occupier and will generally lose out on multiple bid situations.  A flipper’s analysis goes like this:

• From the after-repair value, subtract the cost of selling (commissions and closing costs).
• Subtract holding costs (utilities and property taxes).
• Subtract repair costs (if we haven’t seen the house yet, I use 15% of the after-repair value).
• Subtract money costs (I start with 1 points, 12% interest, and 1% in fees, if using hard money and the particular investor’s costs are not known).
• Subtract profit (20% of after-repair value).
• You now have a maximum bid amount.  Bid 90% of that to leave room for negotiation.  There will often be 4-5 rounds of negotiation.  If we get mutual agreement or an attractive counter offer, we’ll go look at the house.

An investor who will keep a house as a rental has a choice: Does he or she want to pay any more than a flipper would?  Or does the landlord really like the particular property and wants to pay up like an owner occupier.  The flippers are generally having to make bids on 25 houses to get 1 under contract.  They avoid falling in love with any particular house.

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