Why Sellers Overvalue: Lessons from a $415k Property

I sit back and I think and I say, hey, this is actually what we face a lot of the time in real estate. We face sad situations where we buy properties not because we're trying to lowball people and just take a giant profit, but because this house needed $100,000 of work. It needed a ton of work before we could even get it livable or sellable on the open market. It was going to need a lot more. So I went back to the office, I drove back, and I was actually a little sad about the situation that was there and that people live like that. And I wish I could help them. I hope the guy's doing good. Don't know much about, uh, we'll get to the end later about what ended up happening property, but I hope the guy's all right. So I drive back to the office and I say, wow, with $100,000 of rehab, I can't buy a house for $415,000 or $410,000 like the guy wanted, the seller was asking, and sell for $500,000 if it needs $100,000. I'm going to be upside down, plus I need to make profit, plus there's a bunch of other costs in there like closing costs and all that. So I sit there and I say, look, with my new numbers, I'm actually going to need to be in the low $300,000s, just like that other buyer, the white old man with the gray hair. He told me I need to be lower. So reluctantly, I feel like it's gonna be a tough conversation because the seller thinks he's, you know, he thinks he has a gem here. So I eventually called the seller, I make my offer, and guess what? He says no. He's like, look, no, I have other people. I have 3 other offers at $415,000, way better offers than your low $300,000 offer. And I was like, there's no way that someone's gonna buy this house at that price. I'm sure they're just trying to lock you up and they're gonna renegotiate you down later. Also, I asked him while I was on the call, I said, did you know the house was in in that bad of condition. Guess what? The seller now is like, yeah, well, the guy's disgusting and he didn't tell me, bro. I'm like, you should have told me, man. You should have told me. But look, sellers are liars and buyers are too. That's just unfortunate how it goes. I'm not a liar.

Okay, so I'm about to call Michael. I just went to see his house.

Terrible, terrible condition.

I just sent him a text message of the photos from the property to show him that, you know, I saw it. It's a lot worse. We're gonna have this discussion. He just wants an offer. I'm not just wanting to make a quick offer and get off the phone. I'm trying to figure out how we can structure a deal.

Man, this house is bad.

Okay, I'm gonna call him, and this is the kind of guy that's gonna try and just get your offer out of you immediately. I'm gonna try my best to not just make my offer immediately. We'll see how I do. I can talk a big game, but this guy, this guy's a freaking bull.

Hey Nathan.

Michael, how are you?

Good, thanks. How are you doing?

You know, it's a good day. It was, uh, it was quite the property you got there once I got down there and saw it. I'm pretty hesitant hesitant to make my cash offer just because I know it's a lot, probably a lot lower than what we initially discussed just without me seeing it. But it seems like you want a cash offer.

Yeah, because I'm going to do a 1031 exchange, so. Okay.

Yeah, you know, because again, I want to— I'm exploring options on this one because I think if I were just to come at you with a cash offer, it would— I wouldn't want to offend you. And this one, after looking—

Just tell me what the cash offer is. You're not going to offend me. Okay, so for cost to buy house, $304,000, that's what you're saying?

That's what I'm thinking after running the numbers. You got $480,000 is the after-repair value of what I think I can sell this for if I fix up the landscaping, do a complete rehab on the house. I have my hard money costs, and I think it would take 6 months in total to rehab and list. And since I'm, you know, I have connections with agents, I don't pay to list my properties. I just have to pay for a buyer's agent. So I got closing costs, $85,000 rehab, after everything's said and done, I'd make about $47K. You know, 304, is that something you're open to, or is that completely like not something you're not interested in?

No, it's not even close.

Okay, then we kind of explore the different options of like the terms, you know, where I basically go in there and I can make you payments, fix up the property, and it would be cheaper than me getting hard money, right? And then I list it and sell it when it's ready. That's a potential option, or we partner on it and we figure out, you know, how much money I bring to it, if we split it, or if I do the whole thing, how much you would walk away with, and would we split the profit above what we give you? You know, those are the options that I can see at the moment.

I mean, the best option, I mean, I would consider some sort of seller financing potentially. You know, initial number is $304,000. I mean, I've got offers at $410,000 cash.

Yeah.

So for me to carry it for a year, I'd have to be at least $450,000 to make it, to make sense.

Which I understand completely.

But The thing is, everybody, it didn't work out. He didn't accept my offer. So then I said this. I'm not done. The story is still getting juicy. I said to him, hey, look, I'm going to follow up with you because I don't think that offer will go through. He said, hey, better yet, I will call you and I'll let you know if it closes. So he said, it's closing next week. I'll text you. I get a text the following week. He said, just got paid, got it closed. And I said, well, what price did someone buy it at? He said $415,000. I was shocked. I said, there's absolutely no way someone bought it for $415,000 and is going to resell it and be able to make money. They're definitely new. They don't know what they're doing. He said, I don't know how they're going to do it, but I got paid. So I said, hey, do you mind giving me the information of the buyer? I'd like to talk to him because I sell properties too. If he's buying properties at that crazy price, I'd like to sell him some properties too. He gave me the information of the buyer. I gave him a call and I talked to a guy named Scott. I said, Scott, how did you do it? How is this possible that you beat my, my offer, my cash offer by almost like $100,000? How did you do it? He said this. He said, I have a relationship with a hedge fund. That pays a lot for properties that meet specific criteria. What I'm going to do is buy this house, clean it up, get it ready, and then I'm going to sell it to them. Now, wait right here. Even if you were to do that, in my mind, I ran the numbers. It's like, even if you were to do it, buy it, hold the property, and then sell it to the hedge fund, how are you going to make money? Even if they pay like $440K, you're going to have to buy it, wait 2 months, clean it up. It's probably going to cost at least $20K, $30K. Where's your money? I didn't say this to the guy, but I thought this. But anyway, it's up to him. He can do whatever he wants. But I was just shocked that someone bought it and paid that much because there's just no room. There's no spread. We'll see what happens. I think we should do a follow-up video to see if the guy made any money. I can call him. But basically what I wanted to say to everybody is I try to turn a situation that went from not being very interesting and the guy saying he wanted too much to go to see that it was in way worse condition and then finding a buyer that's willing to pay way more. And this going to see this house before I made a cash offer, I was able to go meet a new buyer through this situation. I was able to kind of work on my skills of being able to negotiate and walk. And I met another buyer at the house. Anyway, there's a lot of things that I learned, but one of the things that I want to let everybody know, that if you are talking to a landlord that doesn't live in the same state and hasn't seen the property in a while and they want to sell their house, you should go see the property because 90% of the time the tenant that lives there has not been taking care of it and has neglected it. And the landlord doesn't know. This is what they call out-of-state absentee owners. They do not live in the property. They're absentee owners and they're out of state. So that's what these are. So if you run into any of these and they want to sell the house, go and see the property. So what started as a simple property visit transformed into a story of twists and turns and seeing houses with poop and meeting new buyers. It was absolutely crazy. It taught me again that in real estate, every challenge can lead to new opportunities. Thank you for joining me on this roller coaster of a ride story. And if you enjoyed the content, please like, subscribe, and hit the bell icon for more content like this. If you enjoyed it, please support me and we'll see on the next one.