Investor · Mount Pleasant, OH · Member since 2016 · 94 posts · 11 votes
I put in an offer for a potential flip. My offer was for 45k subject to inspection and financing.
My agent says the seller has responded by saying 45k is fine but they only want cash offers and they are "not going to deal with inspections." The selling agent has had the house on the market for 18 months and needless to say, he is not happy.
My agent tells me that they have had the house under contract twice but it has fallen through based a bank requiring repairs prior to closing or a low appraisal. My guess is that prior buyers did not intend on flipping the property and they were likely attempting to use an FHA or similar type loan. I am not sure though.
I think the house is a good candidate for a flip, but I certainly am not going to buy it without an inspection and I do not have 45k cash.
My thought is to go through it with an inspector and try to line up financing and if/when I get everything worked out then resubmit my offer.
Anyone ever run into this or a similar situation? Thoughts? Suggestions?
You can buy without inspections. You can close fast.
When you can offer these 2 things you can buy at a discount. All my offers are "I will buy the property "As-Is". No inspection and cash. I have private individuals who hold mortgages on my properties. Sometimes they are in place by closing time. But the sale is not contingent on this.
I just bought a property that they could not sell. I negotiated owner financing. When I went to sign the agreement of sale, the lady asked me what I would give her if I paid cash. I always give more if they hold the mortgage. I tell them the price is contigent on them holding the mortgage. I gave her a price that was 1/3 lower as a cash offer. She accepted. I crossed out the sales price and the seller financing terms, initialed the changes. Signed the amended agreement. I could only do this because I have funds available.
I actually deal with this quite often. One thing that I do is always schedule a walk through. I have trusted contractors who work directly for me who accompany me to the showing and we do our own "inspection", checking the roof, foundation etc. Of course, there is always still a small risk but I tend to get prices lower by doing it this way.
@Bruce Clark, how are you intending to fund the purchase? (I believe conventional Lenders don't usually let you start a mortgage unless you're borrowing at least $50k).
If you're intending to use a hard money Lender anyway, just make sure they give you proper "proof of funds" ie. make sure they've pre-approved you for a "no financial contingency" loan.
And try to ensure your Offer/s are so low that you'll still be ahead even if every nightmare crops up!
@Brent Coombs Thanks for the tips. I have heard a lot of people say that conventional lenders have minimums on mortgages. However, it must not be universal, because i work with a local bank, and I've had several loans/mortgages of less than 30k.
@Jeff B. thanks for the tips. I think I am going to try that route.
You can buy without inspections. You can close fast.
When you can offer these 2 things you can buy at a discount. All my offers are "I will buy the property "As-Is". No inspection and cash. I have private individuals who hold mortgages on my properties. Sometimes they are in place by closing time. But the sale is not contingent on this.
I just bought a property that they could not sell. I negotiated owner financing. When I went to sign the agreement of sale, the lady asked me what I would give her if I paid cash. I always give more if they hold the mortgage. I tell them the price is contigent on them holding the mortgage. I gave her a price that was 1/3 lower as a cash offer. She accepted. I crossed out the sales price and the seller financing terms, initialed the changes. Signed the amended agreement. I could only do this because I have funds available.
@Account Closed the house has been on the market for over 18 months. Clearly it is not in high demand. It is empty. it has active leaks in the roof. Bats and birds have found their way in. Despite all of this, the owners have decided to limit their potential buyers to someone who has 45k cash. To each their own, but to me it does not seem like the type of property to be limiting the potential buyers you would consider.
@Mark Holencik I appreciate the advice. I do understand the power of a cash offer. I am not in the position yet, but I can get there eventually. As I said, I do have some buy and holds, and I am building a savings from my cash flow. I have not done any flips yet, but i am working hard on it. Sooner or later I will get a deal together. My plan is to use all the profit from my first deal to fund my second and keep rolling. I will get there.
Could be that previous contracts fell apart because most banks won't loan less than $50k, the bank could also dump the deal if the appraisal comes back low. Regardless, it's a red flag to me.
I think Jeff B's advice is good. The 2nd "lowball" offer will put things into perspective for the seller...or he or she will get pissed and reject both.
@Mark Holencik I appreciate the advice. I do understand the power of a cash offer. I am not in the position yet, but I can get there eventually. As I said, I do have some buy and holds, and I am building a savings from my cash flow. I have not done any flips yet, but i am working hard on it. Sooner or later I will get a deal together. My plan is to use all the profit from my first deal to fund my second and keep rolling. I will get there.
When people ask what I do, I tell them. I buy rental properties, and I give 8% to people that loan/invest me money.
That's a nice way of saying "This house has big problems, a bank won't put a mortgage on it"... Likely structure or mold, but it's probably really expensive or else they'd have fixed it themselves.. you could always get an inspection done before, but they are telling you they won't fix anything. It's definitely not that they "want" to only sell to cash buyers, it's just they know banks won't finance it, so they are stuck with cash only offers.
We have done deals like this... this is when cash is king, so you can offer around $25-30K cash, and see if they take the bait! Good luck!
@Bruce Clark Essentially what the seller is saying is that the property won't qualify for traditional financing. He wants to close and has already found out that the only way it will happen is a cash offer with no contingencies. Make sure your offer reflects that. Many people treat a hard money lender the same as cash (it's not technically, but that's for another thread). As others stated, bring a contractor through and get your estimates to make the offer with no contingencies IF you feel comfortable with the scope of the project. Make sure you have plenty of padding in the estimate.
If you think it is a great deal worth the effort, you could walk through the property with a trusted general contractor to essentially do an inspection before you put in your offer. Then find a hard money lender to fund a cash offer ...
Thanks everyone for the tips. I am going to walk the property with my contractor and assuming he doesn't find any major issues, then I'm gonna make a significantly lower offer. If they take it - great. If not, I am already looking for the next one.
@Bruce Clark, I assume this property is in Ohio. If the property has been inspected by other potential buyers, it is highly likely that at least one of them sent the inspection report to the listing agent. In that case, the seller and listing agent are required to disclose any and all defects noted in the inspection report. Basically, you'll get an inspection without having to pay for it.
I know that it doesn't solve your problem regarding paying for the property, but you've at least gotten the opportunity for an inspection.
@Bruce Clark the listing should state AS-IS and only cash offers will be accepted assuming that is the case.
Keep in mind sometimes people say cash and really mean non-FHA. You could tell the seller that you will do an inspection, then resubmit an offer that is conventional financing with no inspection contingency. It will be contingent on financing and appraisal, but assuming the price you offered is low enough, that shouldn't be a problem. If he says no than you have no choice but to walk away.
I don't blame the guy for what he is asking. Each time a property was under contract and falls through, it is probably off the market for 6 weeks. He is probably just sick of people wasting his time. One good question is what did the property appraise for when the deals fell through?
Joe Splitrock
I have to agree with Joe.
Sounds like more accurate would be "Sold Cash Only, As is".
Ask the agent. That may not mean they don't want inspections, they just know, from experience, that the house will not qualify for financing as is, and they are not going to fix anything. If this is the case modify your offer as warranted, if you can pay cash. If not, keep looking.
@David Dachtera the ARV will be in the $150k range. It is in a nice area where some homes are selling for well over 200k (which is a lot for eastern Ohio). I really cannot imagine that, even in its current condition, it would not appraise high enough. I really think the prior buyers were attempting to use an FHA type product or they were using a large national bank. I know I could easily get a loan for the $45k from the local bank that I have a great relationship with. The $50k rehab may be a little more of a challenge. Honestly, I am not sure though, because I have never approached them with a flip project.
I am going to walk the property with my contractor and have him really take a close look. Then if there are no issues, I will make a lower offer that I can cover should they accept.
Then I think I will keep making the same low offer once a month and see what happens.
I didn't read the above posts, but this is a "UI" (Uninsurable from an underwriting perspective) property. It will fail underwriting if you use 'bank' financing. Buy with substitute collateral or a Line of Credit or a partner that has cash. If you go this route, be careful because these properties might have major impairments. You can 'inspect' (take a qualified inspector), but your offer won't be accepted with a finance contingency. Good luck.