For the last 4-5 months, Ive been searching for a duplex. The range in the towns Ive been looking at generally list from $115,000 to $140,000 for two 3 bedroom units. The median rent is $900. for the area and I'm looking to rent at $850+/-. Ive put in a few offers but ended up walking due to a counter that only an owner occupant buyer might bite at (4-5% return).
One of the real estate agents(and investor) that I use mentioned that she knows an investor (flipper) who was looking for work to get through the winter. She suggested that maybe he would be interested in purchasing a duplex(that she will find) that needs a rehab. And then after the rehab is complete, I would buy it from the flipper at a specified price that would get me the return I was looking for (10%). She also said that he would allow me to follow the process on the rehab from beginning to end which would enable me to run the rehab on the next property.
The first thing, which we have yet to discuss is how the deal is structured. Obviously, they need to know what purchase price will give me my return. But if the price is determined before hand and the flipper makes the initial purchase, how do i structure it to protect myself from getting something that I might not be approve of when its done? I'm not comfortable with signing a purchase agreement on a property prior to the rehab being completed.
The second thing is vetting. I met this real estate agent over a year ago through my local (fairly large) REI. This agent helps run the REI, has a very good reputation with many in the group, and always has multiple projects(wholesale & flips) going on. She stated this flipper has completed a very large amount of flips. I know that I need to vet this flipper through multiple other sources even though I trust this agent.
Any advice on structuring of the deal or vetting in a situation like this? Has anyone completed a similar deal?
On the surface, this seems too complicated but perhaps I need more details.
Why not have the agent find you that duplex to purchase and not the rehabber?
While there is the possibility of it working out well for everyone, I also see a lot of risk for you in the scenario. One thing that concerns me is setting the exit price before anything is done. It seems you could end up paying top dollar for low value upgrades.
In this plan, where is the agent getting commissions? The initial purchase and a rental listing seem reasonable. Getting two sales commissions does not.
I would check out both parties more in depth. If the flipper needs capital, maybe partner on a flip(with you having significant upside on it), and use the rental option as a plan B exit strategy.
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