Rehab #9, Reading – Under Contract

 

Rehab #9, Reading - Before Front ExteriorMy father and I got our next property under contract in the town where I grew up, Reading.  I came across this deal from a real estate agent we’ve dealt with in the past.  She is a top agent in Reading and knows the market very well.  Her office had the listing and she gave me a heads up a week early, so I could be ready once the property hit the market.

The property came on at $285,000 with the seller asking for highest and best offers.  She wanted all offers submitted within 5 days.  Since this house is in a nice location in a great town, I knew there would be a lot of competition and I wouldn’t have the highest offer.  However, I did have other advantages.  For one, the listing broker knows me personally and trusts that when I make an offer, I will close on the deal.  Also, one of the things that I try to do is understand the seller’s situation.  How can I structure the deal to be more appealing to the seller?  Money may not be the seller’s #1 priority.

After talking with the listing agent, I learned that the seller is moving across the country in 2 months.  She isn’t going to take much with her so she needs to figure out what to do with all the furniture and other belongings that she has accumulated over the years.  In addition, depending on the closing date, the seller may have to stay in a hotel until she makes her journey across the country.  This was great information because I was able to be creative with my terms in order to best assist the seller.  Here is the price and terms that I offered:

– Purchase Price – $280,000 ($5,000 below asking price)
– Closing Date – She can select the date so she won’t need to stay in a hotel
– Additional terms – She can leave anything she doesn’t want and I will remove it for her

I submitted the offer on a Friday and the listing broker called me back the next day telling me that there were several higher offers but the seller really liked my terms.  So after a couple of counter offers, we ended up settling at a purchase price of $283,500.  Evidently, this was still much lower than other offers but my terms were more appealing.  We are scheduled to close on October 28th.

Here are the preliminary numbers for this project, a brief description of the rehab, and pictures.

Rehab #9, Reading - Rehab Analysis

This house needs a medium to heavy cosmetic rehab, along with some floor plan changes.  Structurally, the house is in great shape but the layout is a bit quirky and compartmentalized.  We are going to open up the walls between the kitchen, bedroom and living room to make it a nice open floor plan.  The kitchen will move to the existing bedroom area and the dining room will be located where the existing kitchen is (see floor plans below).  We are going to add heat in the sunroom and make it more open to the dining room.  Both the first floor and second floor stairway areas have a lot of dead space, so we’ll create an office nook on the first floor and expand the bedroom on the second floor into the stairway area.  Finally, the two bedrooms (front and back) on the right side of the house will be combined to form one large master bedroom and a master bath will be added.  I’m really excited about this project because the transformation is going to be awesome!  We are estimating that it will take about 2-2.5 months to rehab which will take us into 2014.

I’ve decided to go with a rehab loan for this project because we have several deals lined up and will need to reserve our cash and line of credit to close those future deals.  Also, by utilizing leverage we will increase our ROI, or cash on cash return, from 18.85% to 65.46%.

I reviewed the comparables and am projecting an ARV of $470,000.  Two agents have already told us that based on our proposed floor plan changes they were confident we could sell it for $499,000 on the back end due to the demand in the town.  However, I like to stay fairly conservative on the ARV.

Here are the preliminary AutoCad drawings of the existing and proposed floor plans.  The black box in the middle of the house is the chimney.  I’m thinking about taking the chimney down and power venting the boiler out the back of the house but the exposed chimney in the kitchen might look really nice with exposed brick.

Existing Floor Plan

Existing Floor Plan

Proposed Floor Plan

Proposed Floor Plan

 

Here are some before pictures of the house.

 

I’ll write more about this deal once demo has begun….

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