I live in a desirable neighborhood in Portland and there’s a house around the corner I’ve had my eye on that’s been on the market since the spring. It needs literally everything: electrical, roof, ext paint (lead), plumbing, kitchen, and baths. Floors are in great condition. They came on the market way too high and have already turned down a few offers. (Emotional- it was their moms). By now they’re highly motivated because homes don’t really sell in winter here, and they’ve already come down $100k in price.

I walked it yesterday with my agent and contractor. At the price they're at now, the margins are still too risky to do a flip.

I'm considering putting together a seller-financed offer where I'll put down $X and pay $X/mo and do all the work in order to have it back on the market by next summer. In order to mitigate the risk to myself I wanted to build in a guaranteed amount I get from the sale and stipulate contractor and I get paid first, and the sellers get whatever the balance is. In order to incentivize all parties to be on time and budget, as well as do high quality work required for this neighborhood, build in a schedule of profit sharing at various thresholds of sale price, to be shared between me, contractor, and seller.

Has anyone done a deal like this? How should I structure offer? I’ve worked with the contractor on a big project before so I’m confident in that side of the equation.

Any thoughts, concerns, advice, personal experiences greatly appreciated!

I like the idea but I think the owners might balk at it unless desperate.

After you determine what your profit amount should be based on all your numbers offer them that amount or slightly under. They may not be comfortable with the unknown. +

What is the ARV and cost for the potential project?

@Eric Washington the ARV could be anywhere from $825 - $925k. It's currently listed at $660. I'm not expecting the offer to be a slam dunk, but I do know they had expected to sell by now and since the season has passed, they're a little regretful of not taking previous offers. It seems they don't have the money or energy to remodel it themselves. Typically people buying in this neighborhood have school-age kids and are less likely to want a fixer of this scale.

So if they are willing say offer them 600 or whatever works for your numbers.  If you sell at 825 thats what they get. If you sell at 925 they get 50 more

@Cori Leste 15-20% gain after reno is considered a fairly reasonable to good target margin in this market. You probably want to drag your renovation out a year to change your marginal gain into a capital gain

@Eric Washington very few normal sellers are going to make those type of contingency deals. Even as an investor, I wouldn’t touch a deal structured like that without knowing the buyer well.

I'm currently in probate hell over my mother's estate. What the heirs probably want is a quick sale, so they can quit fighting and be done with it. It's obvious they couldn't agree to who gets the house and/or none of them could afford to buy out the other heirs.

So, I'd think in terms of what the other side wants in your negotiation.  Trying to structure a complicated deal and get more than one heir on board will probably be about impossible.  Plus, if you're telling them they need to wait until next summer for their money, they will probably think they'd be better off to just wait until next summer to sell it.

Now, next summer is just 7 months away or so.  So, you need to offer them a sweet deal that is better than them just waiting until next summer to sell it and possibly get more money for it in a hot market - I'm assuming the market in Portland is normally hot.  And, you can assume they're already fighting about who is responsible for paying for the upkeep, who is making sure the pipes don't freeze, dealing with repairs, gardening, do they just want to rent it out....major hassles they're dealing with between them, probably.

What can you offer them that's too good to refuse?  If you were them, what would be too good to refuse for all heirs, hopefully?

If it was me as one of the heirs, I might go for a deal like you offering to buy it for $700,000 with whatever down you can afford on an owner-carry, at 10% interest with a balloon payment due in August, or some version of that. That way, it's sold, they don't have to deal with any more expenses on it, and they know they'll get their money in 8 months. It's money in the bank, and they don't have to argue anymore about who is taking care of it. And if they have to foreclose on you, they will have an upgraded house they can just sell it for more. Those would be good selling points, in my opinion. And you have complete control over the contractor, etc., because it's yours.

Oh i know just tossing i idea out there


Originally posted by @Steve B. :

@Cori Leste 15-20% gain after reno is considered a fairly reasonable to good target margin in this market. You probably want to drag your renovation out a year to change your marginal gain into a capital gain

@Eric Washington very few normal sellers are going to make those type of contingency deals. Even as an investor, I wouldn’t touch a deal structured like that without knowing the buyer well.

@Sue K. . Actually the Portland market is currently flat.  I don’t know how this has been affecting flippers and their acceptable margins.

Originally posted by @Steve B. :

@Sue K.. Actually the Portland market is currently flat.  I don’t know how this has been affecting flippers and their acceptable margins.

Oh, interesting.  I just keep hearing how hot the market is in the Portland area.  Well, perhaps there will still be a way to make an offer they can't refuse, and still make a nice profit without having to deal with a bunch of annoying heirs.

@Sue K. Yes the news cycle seems to perpetuate outdated statistics, partially due to political concerns.

We have been flat for a bit now and due to the substantial amount of new housing that has come online in the last few years, even my rental pool quality has declined precipitously. Of course these facts contradict the “emergency housing” laws that the Portland city council are ramming through so there is a political interest in sustaining a fake narrative. In any case I don’t expect a significant price decline during a strong economy.

Originally posted by @Steve B. :

@Sue K. Yes the news cycle seems to perpetuate outdated statistics, partially due to political concerns.

We have been flat for a bit now and due to the substantial amount of new housing that has come online in the last few years, even my rental pool quality has declined precipitously. Of course these facts contradict the “emergency housing” laws that the Portland city council are ramming through so there is a political interest in sustaining a fake narrative. In any case I don’t expect a significant price decline during a strong economy.

I had no idea.  How frustrating.   

@Sue K. is spot on.

Only thing I can add is to not focus on 'changes' to the house but to focus on things like a fixing the leaks with a new roof, things that one can obviously agree needs to be done.

When I handled my mom's estate there were a lot of folks that did not want the house to change.  They were upset that it was sold to someone who wanted to open up the floor plan, make changes.  

Since it was their mom's house, in their mind, it may be a perfect house that just needs a few things fixed.  Focus on fixing, not changing:)

@Lynnette E.

I agree with this statement. Yes, the house probably needs updating but this family sounds emotional and are probably not the perfect situation to try something different, like an owner financed flip. Although I love that idea, I agree with another suggestion to just buy it outright, flip it yourself (don't have to argue with the heirs about what's the right way to change the house), then give them a balloon payment after you resell it. Don't know anything about taxes, but this seems the best approach for personalities in probate. Good luck and keep us updated! We're rooting for you!