I have a B-location property I am in negotiation to purchase, and need some advice to create a win win if possible.
Background: The property is in Metro Detroit Michigan, B location.. across the street from a school on a dead end street, down the street from a park. Comps value the place at $99k, I can get $1200/mo rent. My offer was $91k site unseen, would hit my ROI and cash flow metrics assuming 30 yr mortgage and $5k of additional improvements needed. HOWEVER- after inspection and research have uncovered some issues....
The house was flipped by an aspiring real estate investor who acquired the place as a wholesale deal (re-assignable contract)....did the flip without pulling permits from the city and therefore sunk money on CapEx (I.e a new kitchen) which now requires more investment to be within code, and also has a list of city inspection issues which requires even more investment (driveway cement repair, new chimney mortar, front porch cement work). Note- My team went to city hall, talked to the city, got the inspection list from them directly.. they aren't happy with this guy at all.
His business case is already in the red, he's desperate to get rid of the headache but can't sell it without a clean COO- yet has no more money and is already behind on $40k of private money... He also seems very negligent, not just naive..
He has netted $105k on this property all-in through acquisition + investment, I need it at $91k for my math to work. I want to help this guy out but I honestly don’t know how to create a win win without this guy bleeding severely, and I won’t acquire something that doesn’t meet my numbers.
I've considered a land contract that helps him with his debt short term, puts all owness on him to bring it to code, and keeps my ROI strong... also thinking of just offering a cash offer I'm comfortable with, taking ownership of all improvements with the city based on a solid SoW, then refinancing.
About to walk away but thought I’d check with my creatively - minded fellow BPers to see if there’s a solution I haven’t thought of.
in my market I wouldn't pay 91k for $1200/month in rent so with that in mind I walk away. With a seller like this there is no telling what else you might find after you own the property. Not worth the risk in my mind.
This seems like an OKAY deal but I agree with @Jacob Sampson to walk away. You'll probably find more surprises once you start the rehab and it's going to add up fast. That $5K budget could balloon to $15K over night. The driveway, porch, and chimney repair is going to be $5K at least. I just hired a masonry company to rebuild an exterior wall and front porch. Dropped $6000K on it. I'd cancel the contract or make a CASH offer but it would need to be lower.
Just thinking aloud here but how about an you taking an option to buy the property at your ROI number less the amount needed to fund the repairs to be exercised 15 days after completion of all repairs? You pay $1 for the option.
Detroit doesnt require a clean COO upon closing unless you specify it in your agreement. Reading your post I would walk-away i have dealt with these type of sellers in the Detroit market. It's already too many red flags. If you buy you have 8-15k possibly in repairs after uncovering more issues. This in return will take more time and these are the worst months for trying to find good tenants.
I have an investor here pulling $1200/month on a SFR 2bed/1bath I sold him for $55k & it's C-B Class.