?Awesome Case Study: How would you negotiate this deal?
5,000 sqft lot, 1,000 sqft house. 3 bed 1 bath. High density zoning, able to build apartments or condos. ARV for comparable development projects 1,400,000.
The initial strategy was to take the existing loan sub-to ($163,000 + $20,000 in reinstatement fees), get the seller some cash at closing ($20,000) and then some additional owner financing ($45,000 for 1 year, 4% interest only payments). This was done in order to make the deal more appealing from a development standpoint. The terms would allow a developer to save money during permitting and prior to construction.
Since the property is zoned RH (residential high density) , I got it under contract at $240,000 and was hoping to wholesale it to a developer for a $20,000 wholesale fee. They would then demo the existing house and build condos or apartments. There’s a similar lot with condos on it less than 5 blocks away. Sounds easy.
Except my baby has some defects…There’s a strip club close, only on street parking, and near a busy street. Worst of all, nobody wants to hold it… I mean buy it.
You can't flip it, the ARV for the existing house is $290,000 and est repairs are 30-40k. That leaves no room for cash to seller or a wholesale fee.
I will still wholesale it, however, the only option I see is renegotiating this in favor of a subject-to hold. Payments are 1,100 PITI and it could rent for 1,500 to 1,600. Then it could be flipped down the road in a few years or kept as a long term rental.
The numbers would look something like this:
Reinstatement amount: $20,333
Repairs (to get rent ready): $10,000
My wholesale fee: $5,000
Cash to seller:?
Buying costs: $35,333 + amount re-negotiated with the seller
I’ve said all this to ask, How would you approach the seller to renegotiate this situation? Remember, This guy has thought for the past 2 months that he will be getting a total of $65,000 out of his property, now you have to go back and try to get him to take a fraction of that. He has a small daughter in the 1st grade and wants to use the proceeds from the sale to move into a mobile home.
Looking forward to your responses
Oregon, Portland, Washington