In Search Of Profitable Fixers
You’ll notice I said PROFITABLE FIXERS in the title! There are literally hundreds and thousands of fixer houses on the planet, but many are not worth the time of day. As you develop your fix-up skills, you must make certain you are rewarded appropriately for your efforts! Don’t waste your time fiddling with fix-up projects with “skinny profit potential”. I often tell my students: We are looking for a particular set of circumstances more than for a property. We’re looking for fixer properties with all the right things wrong with them!
FINDING BIG EQUITIES
I’m looking for properties where sellers have large equities. Obviously, it means the debt is smaller and the seller has probably owned the property for quite some time. He’s allowed it to gradually run down hill – “property milkers” we call these sellers! They pocket all the rental income with no intention of putting any money back into the property for upkeep. Finally, the property is rundown and becomes a pigsty!
Big equities are necessary because most sellers develop a mental block and become negative if your offer is less than the mortgage balance! For example; suppose they owe $75,000 mortgage debt on a property I believe is worth $100,000 to me! I would like to make an offer for $70,000 total. Sellers will almost always refuse my offer and quite often feel insulted. There’s also a good chance they’ll refuse to negotiate any further with me.
On the other hand, using the same $100,000 value, let’s say they owe a mortgage balance of $50,000. It’s much more likely they’ll now accept my offer for $70,000! It’s easier for the seller because now he has some room (equity) to work with me on the price. In the first example the seller would need to pay me $5,000 to make the deal work. With additional equity, however; the seller now gets to pocket $20,000 if he accepts my $70,000 offer. More equity allows him to take less for the property – and not feel insulted.
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