Newbie Can't sell Flip!

Belinda R. · 2015-01-06T14:56:06-08:00

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!

Kelly Ejirika

Investor · Duluth, GA · Member since 2015 · 36 posts · 21 votes

11y

@Belinda R. What city is the home in?

@Account Closed I'm with you.. I will owner finance everytime that it makes sense. I don't do it in Ohio because of the slow foreclosure process but I was under the impression AL was faster. In Texas and Georgia foreclosures are simple and fast.. No point having to take a discount or even pay commissions.

0 Reply

Steve B.

Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes

11y

Brenda your biggest problem is your flipping INTO a horrid market:

Decatur home values have declined -16.7% over the past year. So your major problem is bad luck, I don't know if this makes you feel any better. But at least it makes your situation more sensical.

You should see all the geniuses flipping here in Portland, their genius is our local hot market making any half-baked flip profitable. However most of them will keep flipping until the market cools and then they will be caught in various stages of their proverbial pants down. The good news is your pants have no where to go but up - again small recompense.

0 Reply

Ron Collins

Investor · New Orleans, LA · Member since 2014 · 73 posts · 29 votes

11y

Wow, this is an awesome thread. It's amazing how many options are available when you own a piece of real estate.

@Belinda: IMHO, fire that agent. Copy this entire thread and e-mail it to him/her.

0 Reply

Philip Bashaw

Investor · Atlanta, GA · Member since 2014 · 172 posts · 64 votes

11y

I had a house on a very busy street I was trying to wholesale...a duplex. It was in a very fast selling market with great schools, great location and priced aggressively. I showed it to several investors as a potential conversion to a SF or a tear down, but no takers.

I thought I had a home run, but no. It was a pocket listing from a broker so I let it go and he listed it and it still didn't sell. This was 5-6 months ago.

Being relatively new myself, I don't fully understand why it's still on the market in that super hyper market. However, I know the busy road was definitely a reason it didn't appeal to the ones I showed it to. Next time I plan to have a list of buyers before I try and wholesale something like this again.

Good luck with your property Belinda R! I know it's frustrating

Phil

0 Reply

Belinda R.

OP

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

11y

Originally posted by @Jim Sakalis:

@ Belinda OMG! Is all I can say about your current situation and the suggestions that others have given. Okay, that is not entirely true. I actually have a much better solution to your dilemma.

I hope I do not offend anyone on the thread when I give you other options. I will try and walk on egg shells as I tackle each one.

Let's start with your $50k cash offer and holding a 2nd mortgage on the remaining amount. I'm guessing your attorney that had advised you does not know that much about real estate transactions or withheld some very important information. Although he/she was correct about the one part about having to foreclose if payment was not made there is a better option to help protect you.

As for that other person in this thread suggesting you take 50k and hold a 2nd in hopes to foreclose, unless you like having someone live in your home rent free for 12-24 months than I would not raise my hand for that. ( Been there, did that. No f- - -king thank you)

Now here is some better options to help you out of your current situation.

1) You could take that buyers $50k and go with one of the other people in this thread mentioned, " get them to go up on your asking price of $94k provided that is in fact one that would appraise. Now comes the little creative part. You could deed the property over while holding the 2nd mortgage, but have them sign a quit claim back to you in case of their default. This way if they get stupid you can evict instead of going through the foreclosure part. ( I would run this by a real estate attorney on how to structure that or I could show you.)

2) Option, you could offer lease purchase terms at full asking price with some down payment in place. Start getting monthly residual while getting the continued tax write offs. You can write off up to 70% as a loss for the first 5 years on a rental property and if they default you keep the down payment tax free because there was never a closing that took place. ( Again, be sure to talk to your local CPA because some states may have different laws, but I do believe it to be true in all 50 states.)

3) Fire your agent. This is an extra cost you don't need. If you don't know the first thing about marketing a home for sale or drawing up contracts, negotiations, etc you can always hire an agent on a retainer to help with minimal services.

4) If you are really wanting to get cashed out to buy another property than I guess the 50k seller held 2nd would be the most attractive of the 3 options above.

Now we have a turn key operation at our investment company where we can get our fellow investors 100% financing deals all day long. In addition, we provide a 50/50 partnership and have a tenant/buyer already in place before you close on the home. Now if it needs work we roll in all those cost into the loan as well to make it easy for you. Just something to consider moving forward on your next venture.

Don't beat yourself up too bad. You can still come out of this in great shape provided you follow one of these above options. If not, we may watch you run off the side of the cliff.

Feel free to reach out to me if you have questions.

Peace,

Any upfront fees associated with your funding? I'm curios as to how you're offering 100% financing.

0 Reply

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

11y

Originally posted by @Jim Sakalis:

3) Fire your agent. This is an extra cost you don't need. If you don't know the first thing about marketing a home for sale or drawing up contracts, negotiations, etc you can always hire an agent on a retainer to help with minimal services.

Personally, I think this is really horrible advice. Probably safe to say that 98%+ of retail buyers buy off the MLS...without working with a broker, you're limiting yourself to the 2% of retail buyers who would find/buy something not listed on the MLS. Seems ridiculous if it's just to avoid paying commission on the sale...

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

1 Reply

Belinda R.

OP

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

11y

In all fairness, I just paid my agent a flat fee to list the home. I take 100% responsiblity for this error. As a former realtor I felt comfortable analyzing the comps provided and pricing the home myself. I'm not really familiar with the county I bought the home in (mistake #1), My agent isn't either. Its amazing as to how drastic markets can be from one county to another that's only 30 mins apart. I ventured off to another county because I kept getting priced out of properties I was bidding on in the area I'm familiar with (mistake #2), I should have been more patient vs jumping the gun. As I mentioned before, after I bought the house foreclosures started popping up in the neighbor I bought which has impacted the value. Another BP member bought to my attention home prices fell 16.7% in that county. I wasn't aware it was that drastic. Add that to all the other factors I mentioned, i.e.house located on a busy street etc. makes for a recipe disaster! I've learned a lot. I'm pondering some creative exit strategies proposed by BP. I will keep you all updated :)

0 Reply

Jesse T.

Herndon, VA · Member since 2014 · 1k+ posts · 324 votes

11y

What are you offering for co-op with the buyer's agent? You might try offering 4% vs. the usual 3%. That should generate some visits/offers if nothing else.

0 Reply

Belinda R.

OP

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

11y

Originally posted by @Jesse T.:

What are you offering for co-op with the buyer's agent? You might try offering 4% vs. the usual 3%. That should generate some visits/offers if nothing else.

3%. I did consider upping the commission at one point.

0 Reply

Jim Sakalis

Investor · Flint, MI · Member since 2015 · 148 posts · 58 votes

11y

Belinda,

I'm not even going to comment on J. Scott's remark. All I can tell you is what we have had success with doing without the use of a realtor as we buy and sell in all 50 states. When you are able to offer the types of terms that we do buyers come to us directly. Being a past Broker/Owner of a company I know first hand there are so many realtors out there that have never heard of or know the first thing about lease purchasing, owner financing,etc which is really sad.

Now, to answer your question about the 100% financing; You would have to put up your down payment to satisfy the mortgage lender, but we would structure the contract so that you would get that amount or more back in repair cost, etc. Surprisingly enough they do not consider it a kick back provided it is disclosed on the hud 1 settlement statement.

I hope that helps you. Jim

0 Reply

Don Harris

Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes

11y

@Belinda R. , Congratulations to earning your MBA (my bad assumptions) in RE. Seriously, I'm impressed with your ownership of the education that this deal is teaching you and The rest of us. You will probably go on to great success in future RE investments. Persevere!

3 Reply

Anthony Ayala

Real Estate Investor · Cypress, TX · Member since 2014 · 7 posts · 3 votes

11y

How about a short term lease. I rented my house out for $100.00 a day for 3 months. I had a realtor do a cooperate lease on the property while the tenant was having his new home built. I know your frustrated however I was too and that extra 3K sure did make some things better.

.

1 Reply

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

11y

Originally posted by @Jim Sakalis:

I'm not even going to comment on J. Scott's remark.

Does that mean you agree? If not, why not comment on it?

It's pretty simple:

1. The bulk of retail buyers find houses on the MLS;

2. If you want to get your product in front of the bulk of retail buyers, you list on the MLS.

Which of the two points above do you disagree with?

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

0 Reply

Belinda R.

OP

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

11y

Originally posted by @Account Closed:

Originally posted by @Belinda R.:

K. Marie Poe

its an all cash sale

So with a $50K all cash offer, I say counter with your number and offer seller financing for the balance. Last year I sold to owner occupants with $150K cash and carried back a small note in first position to get the deal where I needed it to be. Lien in first position with tons of equity is about as strong a position a lender can be in.

Quick question. If I owner finance for $15k and the buyer takes out a home equity line of credit after closing for $20k. Does my position change? Or will I remain in first position?

0 Reply

Dennis Britto

Wholesaler · Philadelphia, PA · Member since 2012 · 7 posts · 2 votes

11y

I did something similar and ended up renting the unit and pulling the equity out. I still had some cash invested in the home but, a least I was able to get most back and use the property to generate cash flow.

2 Reply

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

11y

Originally posted by @Belinda R.:

Originally posted by @Account Closed:

Originally posted by @Belinda R.:

K. Marie Poe

its an all cash sale

So with a $50K all cash offer, I say counter with your number and offer seller financing for the balance. Last year I sold to owner occupants with $150K cash and carried back a small note in first position to get the deal where I needed it to be. Lien in first position with tons of equity is about as strong a position a lender can be in.

Quick question. If I owner finance for $15k and the buyer takes out a home equity line of credit after closing for $20k. Does my position change? Or will I remain in first position?

While certain liens may legally take precedence over a first-lien mortgage (like an IRS lien), the buyer can't willfully kick you out of first position by taking on another loan/lien. The other lien holder would either have to take a secondary security position, or secure the loan with something else.

So, you don't have to worry about the buyer getting a HELOC or another loan...

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

1 Reply

Belinda R.

OP

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

11y

Originally posted by @J Scott:

While certain liens may legally take precedence over a first-lien mortgage (like an IRS lien), the buyer can't willfully kick you out of first position by taking on another loan/lien. The other lien holder would either have to take a secondary security position, or secure the loan with something else.

So, you don't have to worry about the buyer getting a HELOC or another loan...

Thanks for the response. This is good to know.

0 Reply

Scott Lewis

Developer / Investor · Denver, CO · Member since 2014 · 64 posts · 31 votes

11y

What about a housing swap, i.e. trading for a distrissed property in a better part of town? You might be able to convince someone to trade their run down home for a nice new home and then just rehab and flip the new home with a better location. While your money is tied up for a bit longer, you might not have to take a loss.

It's a long shot, but like Gretzky said, "You miss 100% of the shots you dont take."

2 Reply

Greg H.Pro Member

Moderator

Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes

11y

@Belinda R.

First off , while it has neen a learning experience being in an all cash position instead of borrowing the money from a lender has to help you sleep a little better

A few thoughts :

- Are you sure your Agent has it listed in the best MLS for where the property is located as you indicated your agent is not familiar with the area and it is in the next county ?

- I would list it with the number 1 agent or brokerage in that town. I am a broker and do a lot of flips in smaller towns. Even though I could list them myself, I tend to achieve better results listing it with a local realtor. Some agent communities can be quirky and they don't like to work with the "outlanders"

- Maybe give it a breaker for 30 days or so and then introduce it as a new listing

- Call a few of the agents that have showed the property previously and get their feedback as to price

-Post in the towns or county Facebook page. This tends to get people in the neighborhood involved with you in finding a new neighbor

Good Luck!

2 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

11y

Originally posted by @Belinda R.:

Originally posted by @Account Closed:

Originally posted by @Belinda R.:

K. Marie Poe

its an all cash sale

So with a $50K all cash offer, I say counter with your number and offer seller financing for the balance. Last year I sold to owner occupants with $150K cash and carried back a small note in first position to get the deal where I needed it to be. Lien in first position with tons of equity is about as strong a position a lender can be in.

Quick question. If I owner finance for $15k and the buyer takes out a home equity line of credit after closing for $20k. Does my position change? Or will I remain in first position?

You're in first position. A HELOC would be in 2nd position, unless you agree to subordinate your loan. You won't. : ) A loan that small should be paid off in full before there's a heloc behind it.

2 Reply

Vinny Gaines

Real Estate Investor · Elkridge, MD · Member since 2014 · 32 posts · 11 votes

11y

Whatever you do dont be afraid to continue with what your original real estate goals are. Just learn from this lesson and keep investing....the horse will be waiting for you to get back on it.

1 Reply

Belinda R.

OP

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

11y

Originally posted by @Vinny Gaines:

Whatever you do dont be afraid to continue with what your original real estate goals are. Just learn from this lesson and keep investing....the horse will be waiting for you to get back on it.

Thanks for the encouragement! Ive had a desire to be a full time investor for the past 10 yrs. I've saved, worked hard to be able to invest. It's going to take a lot more than this to make me walk away. Can't do nothing but dust myself and go back at it.

3 Reply

Aly W.

Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes

11y

That's the spirit, @Belinda R. !

1 Reply

J ScottPro Member

Moderator

Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes

11y

Originally posted by @Belinda R.:

Originally posted by @Vinny Gaines:

Whatever you do dont be afraid to continue with what your original real estate goals are. Just learn from this lesson and keep investing....the horse will be waiting for you to get back on it.

Thanks for the encouragement! Ive had a desire to be a full time investor for the past 10 yrs. I've saved, worked hard to be able to invest. It's going to take a lot more than this to make me walk away. Can't do nothing but dust myself and go back at it.

We see a lot of new investors who come through these forums, and in some cases, it's obvious when someone has the mentality and intellect to be successful in this business. Everything you've said in this thread indicates you're in that category.

Stick with it...it will get easier!

Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)

2 Reply

Toyin Dawodu

Residential Real Estate Broker · Riverside, CA · Member since 2014 · 82 posts · 121 votes

11y

Hi @Belinda R.,

I think your first mistake is not taking into account both your rehab cost and closing costs for buying and selling, including holding costs. To begin with putting $34 rehab into any property is too much for a newbie unless you have a projected profit of at least equal amount or more. If I was buying the same property, knowing my rehab and other costs will be $34,000, the most I would have paid for the property would have been $20,000. $94,000 X 60% -$34,000 -1% contingency. So when I am done fixing, my total investment would have been $55,000. Based on the location you describe, I would have further discounted the purchase price to $10,000 because these are the red signs that keep a property on the market for too long regardless of how much you spent on rehab.. One of the first things I teach my students is how to make money buying properties. Most people buy and then think about how to make the money later. In real estate investment, you make your money the day you buy, and take your profit when you sell. If you want more on how you can master the process, you can go to my website (please check my profile for info).

0 Reply

Newbie Can't sell Flip!

Newbie Can't sell Flip!

Most Popular Reply

84 Replies