So a friend of mine, who is not into REI, has sent me a couple of off-market leads through his family/friends, which is great but I'm currently low on funds to close the deals. I'm in the middle of SFH rehab for a flip and cannot refi my other property because I will be 1031'ing it early next year.
First, is this a deal?
It's a SFH, 3/2, great condition, paid off with a tenant. The owner is an older couple who is a tired landlord and wants to sell it since they are into their senior years. It could sell as-is for around $270k. If I spend some money (light kitchen/bathroom remodel, laminate flooring, paint) ARV is around $290k-$300k, confirmed by my agent and myself. It's a not a high end home, probably mid level, nice blue-collar neighborhood. I negotiated her down to $230k cash but this took a few months so during that time, I already bought another house to flip and shifted funds around. The spread is much less than I'm used to working with but there is still room for around $20k-$30k profit after expenses and rehab. I know..not much but better than $0 :) I offered seller-financing with attractive terms but she just wants to cash out.
I have been racking my brain on how to finance this. She won't do selling-financing, tenant doesn't have the funds purchase, starting asking friends/family to see if they want to be passive investors but have not had any luck yet, I have a HML I work with but need ~$50k down and points eat into the profits on such a smaller spread. Traditional bank lenders - same thing, need downpay. I'm not going to househack because I already have a house and family.
Any ideas? She said she will just list the house on the MLS with an agent early next year if I don't take it. I can gamble and wait till I sell my flip but not sure if the timing is going to be right. Got another similar SFH off-market deal in the pipeline and would like to get financing ideas in place if that deal looks good.
@Paul Choi I am not sure the juice is worth the squeeze on this one. On my acquisitions I want to have at least a 20% profit baked in. What I mean by this: If the as is value is truly $270k. I would need to buy this at $216k maximum. If the ARV is $290k, then I would multiply that by 0.8, or $232,000. Now subtract $216k from $232k. Will $16k really cover all of your rehab costs, carrying costs, and selling costs? The margins for error seem slim on that, and you are essentially buying it for more than that.
If opportunity is going to come to you at an inconvenient time for you, then it better be worth it. If you really DYING to buy this deal, find a hard money lender who will cross collateralize this deal with another one you already own, assuming you have the equity. OR convince the seller to take back a short term second mortgage (6-8 months) which is junior to your hard money.
@Matthew Drouin Thanks for the insight. I'll take a look at that.
Yes, I have to agree about the margins. My gut says to walk away for now, or at least wait. I wanted the property at $210k but of course she said that was a low-ball offer.
I like your thought "If opportunity is going to come to you at an inconvenient time for you, then it better be worth it." It hasn't hit that button. If the seller comes down to my "I want it" price, then that's a different story. Maybe time, in this case, will help...
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