Selling your Flip property before project completion

2 Replies

Hi BP'ers,

I'd like to gain some views and advice on a current situation:

Flip twin in desirable neighborhood purchased by auction on 11/11. Purchased $239k (all costs). Target selling price $465k. Target profit $70k. Very realistic based on comps. Target completion 2nd week Feb 19.

Current situation: Full Demo done.  All bathrooms and kitchen, flooring, trim etc. ALL removed. Currently framing out and prepping for installations of bathrooms and kitchen, flooring etc. New HVAC system in and framed.

Spent $20k. Budget balance $90k. to complete as per plan.

Issue/Potential:  A buyer has already shown interest and wants to go to contract. BUT requesting changes to planned rehab. including; no third floor bathroom, no laundry in basement and no deck, in exchange for hardwood flooring throughout, first floor laundry room, 2nd floor master, vs third floor master with bath. 80% looks net neutral.  Note: I have been clear that anything outside of project scope with no offset would result in upcharge.

Ideally I would like to sell as is and leave them to complete with the GC.  Offered  to sell at $365k to maintain my profit margin, minus a % for a fast close. BUT they do not have cash to buy and can't mortgage the property as is and do not want to go through two processes i.e. loan to complete then refi once done.

Leaving me with the option to contract with them and make changes in line with their preferences to bring to a close.

It feels risky to me. Even with a 10-15% deposit on an agreed sales price of $465, there are a million ways they could come back and challenge sales price prior to closing, I'm concerned about having their hands in the mix as I try and mange the project for quality AND profit. I'm concerned the custom changes we will make to tailor it to these buyers specific needs will damage the overall potential value of the property to 90% of buyers if there is an issue as we move forward with these buyers. Plus im in the middle of a buyer and the GC - who thankfully  I have a great relationship with. But what is my role here?

Anyone been in this situation?

Can I lock them in legally to purchase at the agreed price in a more robust way than simply going under contract so I can reduce/remove the risk of damaging the potential value of the asset to other buyers through the customization?

Thoughts ideas gratefully received.

Thanks

Robbie

I hope someone else will chime in.  Trust your gut.  I’m going to restate what you are already saying, but reflect it back to you.  GO!

I think there is a fair amount of risk that things aren’t going to go well.  

-They might change their minds as they see the renovation continue, and want other things done or not done.  

- The GC and I have an agreed upon role right now.  I conjecture that this relationship may be maligned by the buyer’s interference. I don’t want to lose the alignment I have right now with my GC, nor do I want the buyer’s interfering in our regular process.

-I have an undefined role in attempting to translate their vision to the GC, and question actually getting this right.  People who want things the way they want them will expect to talk to the GC directly.  

-With a regular contract, I am obligated to sell at the agreed upon price, right? But they might not get financing, or the appraisal could come in low, or whatever other contingency between underwriting, inspection...who knows what...can derail their purchase.

-I ask myself if any of their suggested changes would cost me more or bring a lower sales price based upon my experience in the market.  

-I like things to go right when I renovate, and I like to sell a house to the best qualified buyer at the best price possible.  

-If I renovate this house the way they want me to, I take a larger risk on to myself that includes not selling to another buyer later, should things go wrong.  And ultimately, I risk losing money and the good relationship I have with my GC.

So.  Do I really want to make an agreement with these particular buyers?

They are asking you to do stuff for them with no skin in the game.  I would require like a BIG nonrefundable locked up lawyered up deposit on the house. otherwise they are playing HGTV with your $.  they decide they like something else later they can bounce and you have a wierd house... 

As to the actual work etc... there is no reason they would intervene in the process... you would just change your SOW and go forward... contractor likely doesnt care where he puts what as long as he gets paid.  

I would get a 2nd opinion on the house with their planned changes... someone with no bias... dont present the above, just present it to them like you are debating YOUR choices..  see what they say... they might think the new layout is better... 

my last flip we had people wanting to buy it 95% finished... pre market... it was more of a beat the other buyers move... we told them ok... you are my first call when its done... but we are listing it..

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