SoCal House Flip Dairy: Step One, The Negotiation
House is on the boarder of LA and OC
4 bed 3 bath 2,353 sq ft with a 6,965 lot.
Step One, The Negotiation
I received a call on December 2, 2014 from the son of parents that needed to sell the family home. Parents are in their early 80s with multiple health issues. Home hasn't been lived in for 8 years. They are the original owners of the house, built in 1965. Son lives in the Inland Empire and asked if I would be willing to go to the house prior to meeting him and cover the roof with plastic. I agreed.
Original wood shake roof in very poor condition. Roof is unsafe to walk on and called son to tell him I would not be able to cover but would meet him at the house to discuss potential sale.
Met with son at house for a walk thru. Severe hoarder situation with most rooms blocked or inaccessible. Comp of similarhome on the same block that sold 60 days ago is $594,000. Comp took almost six months to sell and was reduced $35,000. I estimate the ARV at $540,000. Estimate renovation cost is $100,000 to $125,000. Asked son if the family would be willing to do seller financing and he said yes. Based on condition of the house I offered $220,000with 100% seller financed at 5% interest with a 9 month balloon. Son reluctantly agreed and asked me to send him a written offer.
Father and mother are on title but because of the fathers condition I asked if he was able to sign legal contract and son indicated mother had power of attorney. Hopefully, this won't be a problem. At this point the son is the only person I've talked to and the one who is negotiating the deal for the family.
Son tells me mother is in denial about the condition of home and refuses to sign off on the offer. After raising offer to $250,000 the mother asks for son to find other potential buyers. After almost 2months of negotiations we settle on $300,000 with $100,000 down and $200,000 seller financed at 5% interest with a 6 month balloon. Escrow opens on Feb 2, 2015.
Mother believes everything in the house has value and wants to go through it and box it up for storage. Family agrees to clean out majority of house before close of escrow but after 3 weeks there has been little to no progress. Additionally, mother refuses to give me a key to the house or to enter without the son being there. I sense a problem with the deal and ask to meet with the mother. No reply. After several calls and texts, the son and mother agree to meet at escrow office. While I have compassion for her situation, my investor partnersare getting skittish about funding the deal and decide to back out.
I now have a house in escrow but no investors. I need to find $100,000 to close escrow and another $100,000 plus to fix the property. I have two options. I can flip the deal to another investor or I can renegotiate the deal and ask the sellers for 100% financing. I meet with several investors and don't like their behavior or their offers. One of the investors indicates he would like to partner with me on the house. For a 50% cut of the net profit, He will pay for and manage the renovation. I look at his current project and like his work and his crew. Renovation costs covered. Time to talk to the sellers about 100% financing.
March 3, 2015. This is my first meeting with the mother and I can see that she is having a difficult time letting go of the house and all the stuff in it. I tell her I know how difficult this must be for her and tell her my goal with the house is bring it back to the day she first moved into it with her family. I also tell her that we need to change the deal to include 100% financing. Mother and son tell me they will discuss that evening and get back to me the next day. They agree to 100% financing and I tell escrow we can close.
Everything looks good and escrow tells me we can close in 2 days. At this point title says they won't issue insurance without a note from the notary saying the father was of sound mind when he signed the POA. Notary responds the fact that they notarized the POA shows that he was of sound mind and tell title they won't issue a letter stating this. In lieu of the letter from the notary, title asks for all family members to sign a letter stating they approve of the deal. After a few days of family negotiations title gets the letter.
After a week of give and take, we close escrow on March 13. The son asks to meet with me. It seems that the family likes how I've treated them and conducted myself over the course of the deal and asks if they can re-invest the money they will make from the sale of the home in my next house flip.
Paid $300,000
ARV $540,000 - $595,000
Est. Repair Costs - $100,000
Next Post, The Clean-out and Demo Phase.