Newbie Can't sell Flip!

Rehabbing & House Flipping
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Newbie Can't sell Flip!

Belinda R.
Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes

BL: Purchased HUD property Dec 2013 for $32k, rehab costs and expenses were$34k. thats 66k cash of my own money in the deal. The good thing is that I dont have any holding costs other than utilities and property taxes, but $66k is still alot of money for me. Listed property for sale at $94k and have reduced price $85k since its been on the market since March 2014. All the feedback was great but no offers. Received a cash offer for $65k last week so I asked for proof of funds. I figured, I'd take the loss and take it as a lessons learned. Last night got a phone call from the realtor telling me the buyer has $50k cash and wants the seller to carry back $15k....NO DEAL!

Very frustrated here. Lessons learned from this disaster is to never over rehab. Never buy a house on a busy street. Never buy a house without a garage. My strategy was to appeal to first time homebuyers and make it a "wow" house to distract it from being on a busy street. WRONG!!!...LOL!  

Current Exit Strategy: Do a cash out refinance. Pull out equity and do a lease option agreement. I don't want to be a landlord but its looking as if my options are slim.

Any other suggestions? Exhausted!

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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At this point you must completely set aside how much money and time you have invested in the deal.  For buyers this is completely irrelevant.  They're only going to buy your house if its a good deal vs. the competition.  I've been there.  I know its tough to list at house at a price that's going to be a loss.  It just doesn't matter.  That's water under the bridge.  Price it right, get rid of it and move on.

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  • Jeremy Tillotson
    Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
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    @Belinda R. have you tried to offer a free home warranty or something the feedback was good whats stopping them? What will it rent for? Maybe sell it as a turnkey? Just my .02

    1Reply
  • Account Closed
    Involved In Real Estate · NY, NY · Member since 2014 · 28 posts · 13 votes
    11y

    Greetings

    What I usually do in a tough market is to start a marketing campaign myself. Sometimes just putting a for sale on the lawn is not enough especially in certain areas. The last flip I did, I marketed it myself on CL as a rent to own and I showed it to many people and i would prequalify them myself and one person in particular had no idea that he was so qualified to buy a home (Married couple, two income, state jobs, decent credit and a bunch of $ in their 401k). In the end I took a rent to own couple and converted them into qualified buyers and I have doing the same ever since.

    Good luck

    8Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
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    Would you be willing to take $50K in cash and hold back a larger loan if the buyer were willing to pay more?  For example, maybe the buyer will pay $80K instead of $65K, and then the cash flow from the loan payment might make it worthwhile for you.

    Just a thought...

    Btw, I assume you have an agent who is listing and marketing your property for you, correct?  

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    6Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
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    Originally posted by @Jeremy Tillotson:

    @Belinda R. have you tried to offer a free home warranty or something the feedback was good whats stopping them? What will it rent for? Maybe sell it as a turnkey? Just my .02

     Tried all that :) the house bring on a busy road is the main drawback. Realtors and buyers say the house looks really good. 

    1Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
    11y
    Originally posted by @Account Closed:

    Greetings

    What I usually do in a tough market is to start a marketing campaign myself. Sometimes just putting a for sale on the lawn is not enough especially in certain areas. The last flip I did, I marketed it myself on CL as a rent to own and I showed it to many people and i would prequalify them myself and one person in particular had no idea that he was so qualified to buy a home (Married couple, two income, state jobs, decent credit and a bunch of $ in their 401k). In the end I took a rent to own couple and converted them into qualified buyers and I have doing the same ever since.

    Good luck

     I'm trying this strategy now. The house is listed on CL as rent to own. My realtor knows.. Lol. 

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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    What's the market like in your area?  That seems like a long time on the market if the property was properly priced.  Price overcomes all objections.  Seems to me like price is the issue here.  

    I've had a house on a busy street, and it was across from a high school.  Both of these are incurable defects that require a discount vs. an otherwise identical property away from these defects.  Further, only houses with similar defects are comps.  If you're using comps away from this street you may be fooling yourself about the value.   My bad deal had about a 15% discount for the busy street/high school vs. others.  And, between the time we funded the deal (this was a fix and flip where the borrower defaulted and gave the house back to us) comps that supported a much higher value (about $215K) were stale and more recent comps supported a much lower value (only about $170K).  So the comp situation just killed us.

    You want to improve the house to be just above the neighborhood.  Pumping extra money into it will return nothing because the comps just won't support the higher trims.

    Sounds to me like this is a painful lesson.  Cut the price and get rid of it.  I'd have seriously considered that $50K with a $15K carry back.  I'd certainly do that over a refi/lease option sale.

    8Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
    11y
    Originally posted by @J Scott:

    Would you be willing to take $50K in cash and hold back a larger loan if the buyer were willing to pay more?  For example, maybe the buyer will pay $80K instead of $65K, and then the cash flow from the loan payment might make it worthwhile for you.

    Just a thought...

    Btw, I assume you have an agent who is listing and marketing your property for you, correct?  

    I do have an agent.  I did consider taking $50 and selling the house for $70k. Two issues I have with that is that I want to retain 100% interest in the property until it's sold. Second, After consulting with an attorney he advised against it. If the deal goes bad, I would have to foreclose and that could tie up the house for a year. I would only do a seller finance if I could recoup 100% of my initial investment up front of $65 and let the cards fall where they may.  

    0Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
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    @Belinda R. If you are willing to accept $65k why do you have it listed for $85k?

    Maybe list it for $75k.  Be patient as tax time is right around the corner and is the best time to get it done IMO.

    3Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
    11y
    Originally posted by @Kirk R.:

    @Belinda R. If you are willing to accept $65k why do you have it listed for $85k?

    Maybe list it for $75k.  Be patient as tax time is right around the corner and is the best time to get it done IMO.

     The price has been reduced to $75k. I mistyped. 

    0Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    11y

    Once end Feb comes and you aren't getting showings/activity - I would say your price is problem.

    Thanks for the reminder about busy streets.  I have been looking at a few on busy streets and been tempted until I think about the snow plow on the busy street burying the drive to houses I have been looking at.

    1Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
    11y
    Originally posted by @Jon Holdman:

    What's the market like in your area?  That seems like a long time on the market if the property was properly priced.  Price overcomes all objections.  Seems to me like price is the issue here.  

    I've had a house on a busy street, and it was across from a high school.  Both of these are incurable defects that require a discount vs. an otherwise identical property away from these defects.  Further, only houses with similar defects are comps.  If you're using comps away from this street you may be fooling yourself about the value.   My bad deal had about a 15% discount for the busy street/high school vs. others.  And, between the time we funded the deal (this was a fix and flip where the borrower defaulted and gave the house back to us) comps that supported a much higher value (about $215K) were stale and more recent comps supported a much lower value (only about $170K).  So the comp situation just killed us.

    You want to improve the house to be just above the neighborhood.  Pumping extra money into it will return nothing because the comps just won't support the higher trims.

    Sounds to me like this is a painful lesson.  Cut the price and get rid of it.  I'd have seriously considered that $50K with a $15K carry back.  I'd certainly do that over a refi/lease option sale.

    The agent just called back stating they are going to try to borrow the money from friends and relatives. I just want to recoup my losses and run! I figured with the rent to own strategy, I could rent the house for 3 years and still sell it at $75k and make a profit all while retaining 100% interest in the property until it sells. 

    0Reply
  • Account Closed
    Contractor · Raleigh, NC · Member since 2014 · 651 posts · 510 votes
    11y

    @Belinda R.  I offer my sympathies. You seem very level-headed. In the long run, I'll think you'll do well.  

    2Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    11y

    @Belinda R. I would have your Realtor give you a net sheet.  After closing costs realtor fees back taxes - you might be surprised at how little you walk away with.

    2Reply
  • Paul Timmins
    Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes
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    @Belinda R. 

    Have you considered running an online auction of the house. A buddy does it locally. A 28 cycle he exposes it to 10's of thousands pre-qualifies the bidders sets up 3 1 hour open houses so others see people also interested. He works with the owner to set a reserve where it will not sell unless the reserve is met. His last one had a 250K reserve sold in less than a month for 320K

    Paul

    9Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    11y

    At this point you must completely set aside how much money and time you have invested in the deal.  For buyers this is completely irrelevant.  They're only going to buy your house if its a good deal vs. the competition.  I've been there.  I know its tough to list at house at a price that's going to be a loss.  It just doesn't matter.  That's water under the bridge.  Price it right, get rid of it and move on.

    14Reply
  • Jordan B.
    Rental Property Investor · Conshohocken, PA · Member since 2014 · 58 posts · 26 votes
    11y

    What is your current residence like? Would you consider moving into this FLIP for the time being?  

    0Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
    11y
    Originally posted by @Jon Holdman:

    At this point you must completely set aside how much money and time you have invested in the deal.  For buyers this is completely irrelevant.  They're only going to buy your house if its a good deal vs. the competition.  I've been there.  I know its tough to list at house at a price that's going to be a loss.  It just doesn't matter.  That's water under the bridge.  Price it right, get rid of it and move on.

    Agreed :) 

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @J Scott:

    Would you be willing to take $50K in cash and hold back a larger loan if the buyer were willing to pay more?  For example, maybe the buyer will pay $80K instead of $65K, and then the cash flow from the loan payment might make it worthwhile for you.

    Just a thought...

    Btw, I assume you have an agent who is listing and marketing your property for you, correct?  

    I'm a big fan of seller financing. It's helped me save some mediocre deals on the sell side. Be mindful that the property still has to appraise at $80K.  Make sure you have comps to support value if you offer seller financing.  Terms don't make the property worth more than the comps.  Just trying to pre-empt BG's lecture on this one.  

    2Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Belinda R.:
    Originally posted by @J Scott:

    Would you be willing to take $50K in cash and hold back a larger loan if the buyer were willing to pay more?  For example, maybe the buyer will pay $80K instead of $65K, and then the cash flow from the loan payment might make it worthwhile for you.

    Just a thought...

    Btw, I assume you have an agent who is listing and marketing your property for you, correct?  

    I do have an agent.  I did consider taking $50 and selling the house for $70k. Two issues I have with that is that I want to retain 100% interest in the property until it's sold. Second, After consulting with an attorney he advised against it. If the deal goes bad, I would have to foreclose and that could tie up the house for a year. I would only do a seller finance if I could recoup 100% of my initial investment up front of $65 and let the cards fall where they may.  

    This is short-sighted. Don't get too attached to recouping 100% of your investment at closing.

     A solid buyer with a 20%+ down could save this deal.  There are buyers with 50% down in some cases.  Get as high a purchase price as comps will allow and as much of a downpayment as your buyer pool will allow.

    2Reply
  • Rusty Scott
    Real Estate Broker & Investor · Indianapolis, IN · Member since 2012 · 218 posts · 83 votes
    11y

    boy I'd be very tempted to take the $50k. Then I'd hope the guy defaults! I'd love to foreclose on a 65k house where I'm only owed $15k. No matter how long it took.

    You could probably talk him up to 70kb purchase price.

    I'd do this all day over a lease option. Not even close.

    0Reply
  • Andrew Davis
    Investor · Asheville, NC · Member since 2011 · 833 posts · 499 votes
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    @Belinda R. said that if it weren't for some really painful and costly lessons, BP wouldn't exist!

    Even if you can recoup 90% of your cash, you'll have received a college degree in house flipping, marketing, determining market demands, etc...  Imagine what you'll be able to do going forward, and the other's you'll be able to help along the way.

    I lost about 20k in my first real estate deal and it was rough, but I learned SO much and am the better for it.

    Good luck Belinda,

    Andrew

    3Reply
  • Robert Leonard
    Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
    11y

    While I am not a fan of learning REI by trial and error, I think @Andrew Davis's attitude is a good one to have at this point. 

    Lots of good advice already given above.  Best of luck to you.

    0Reply
  • Rolanda Eldridge
    Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
    11y

    @Belinda R. 

    1.  Take the 50K cash and find a better deal!

    2.  Consider putting a renter for a couple years.  I rented  a property purchased in 2006 at top of the  market(50K), rented $650-700 to several, sold turnkey 2014 and didn't lose!

    3.  Compound interest underrated

    Keep an open mind, but get ready to pounce when the opportunity presents itself...

    2Reply
  • William Hochstedler
    Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Belinda R.:

    I do have an agent.  I did consider taking $50 and selling the house for $70k. Two issues I have with that is that I want to retain 100% interest in the property until it's sold. Second, After consulting with an attorney he advised against it. If the deal goes bad, I would have to foreclose and that could tie up the house for a year. I would only do a seller finance if I could recoup 100% of my initial investment up front of $65 and let the cards fall where they may.  

    Your attorney is correct about the seller finance instrument requiring foreclosure to regain possession of the property, but this is not how it typically works in practice.  Most likely your buyer would also be defaulting on the first as well.  (Why would they keep paying on the first if you could take the property from under them?).  This means that if the first foreclosed, you would have to pay them off to protect your interest.  Also, you can negotiate with the first pre-foreclosure.

    It sounds like the buyer is an owner occupant, but if the buyer is an investor, most will give you back the property before forcing foreclosure.

    Either way you having to foreclose would be an unlikely scenario in a seller carried second.

    0Reply
  • Belinda R.
    OP
    Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
    11y

    @

    Paul Timmins, I did reach out to online auctions but was told they only accept properties from private owners sold in bulk. Therefore my one house doesn't qualify to be listed on their site. So, I reached out to some local auctioneers and was told the min charge is $2500 to advertise and hold a live auction. If the reserve isn't met, Im out of $2500. I declined. Is that Barbara Cocohran in your photo? Wow!  Her book is next on my list to read on how she turned $1k loan into a billionaire business! Were you at a seminar? Do Tell..lol! I really admire her :)

    0Reply
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