Offer structure on potential rehab.

22 Replies

I'm walking through my first potential rehab property tomorrow with a contractor.  If the numbers fit, I'm not sure how I can structure the contract so I'm not out a bunch of money If I'm unable to secure enough funding.  I do have 60% of the asking price in cash myself, will need to find the rest.  I plan to offer no where near asking, price is significantly over priced and it's not fanciable due to it's condition.

I need to be able to put it under contract so I can then take the contract to lenders and/or a few potential private investors without costing myself thousands if I can't figure out an avenue to get it done.  This is in California so it's not a 10k house!  Any help/ideas would be appreciated.  Thanks.

Originally posted by @Lee S. :

I'm walking through my first potential rehab property tomorrow with a contractor.  If the numbers fit, I'm not sure how I can structure the contract so I'm not out a bunch of money If I'm unable to secure enough funding.  I do have 60% of the asking price in cash myself, will need to find the rest.  I plan to offer no where near asking, price is significantly over priced and it's not fanciable due to it's condition.

I need to be able to put it under contract so I can then take the contract to lenders and/or a few potential private investors without costing myself thousands if I can't figure out an avenue to get it done.  This is in California so it's not a 10k house!  Any help/ideas would be appreciated.  Thanks.

Include a financing contingency for the statement given above. 

Kudos,

Mary

@Lee S. - If the property is way overpriced why are you spending time walking through the property with a contractor? Do you have reason the believe that the sellers will accept far less than asking price? 

I wouldn't make it a consistent thing to offer in properties vastly over priced.   If the DOM are large then it may be more of a possibility but I wouldn't make it a habit.  Offer on the property and make it continent to your investor's review and approval. 

Property is on the MLS and states that it is not fanciable, cash only. This would leave out the possibility of of putting in a financing contingency. I have a copy of the pest report which is what is causing the financing issues. I've only decided to walk through and potentially make an offer because the property is in a great location and it's a trust situation. I thought it would also give me an opportunity to work with my contractor and put some numbers together and see what happens. My contractor is a friend I've known for 30 years. If I can figure out a number that works, no reason not to put in an offer and see what happens? They are not going to sell it for what they are asking so I thought I could bring them down to reality and be the first one to negotiate. I'm not expecting them to jump on an offer right away but after it sits for a while they may come around.

This is the first house I've seen on MLS with some potential in the past 6-8 months. I have done and will be doing more DM looking for deals.

@Mary B.

Account Closed

First, why can't you get financing on it, just because of a pest report? Second, why would you take it to a lender if it's not lendable? Private money OK, but going to a lender on something that won't pass appraisal criteria is a waste of everyone's time.

If it's a cash only MLS property, any have decent agent will require you to submit proof of funds with your offer. They aren't going to let you go under contract and then find financing.

I should have been more specific, I would go to a hard money lender or some personal friends for private investing for the rest of the funds.

Regretting asking for help at this point.  Thought this was a place to get help, apparently it's also a place to just hammer people. Never mind.

@Patrick Connell

That makes a ton more sense; PM or HM.

This IS a place to get help, but I'm not a kid-glove, or sugar-coating kind of guy.

The points raised and information I relayed are all legitimate points, which will be helpful to you.

@Lee S.

Lee unfortunately if you don't have all the cash to make a cash offer on this house, then you can't buy it without it being continent on opm. If you want to pool other people's money for this investment you need to let your offer and documentation reflect that. The way it works here, it that when a house hits the MLS they let the market speak. This typically occurs for 30-45 days. Then they reassess, make a price drop and keep repeating the process until they get a contract. Chances are if this is a REO that won't accept a low offer early on in the process.

I hear the frustration in your last post and personally I am not "hammering" anyone (and I didn't get that impression from anyone else's post),  however the reality is this property may not be the right one for you.   If it is over priced,  newly to the market,  and needs an investor that can make a cash offer not contingent on anything then it might not be the right one.   There are deals every where and another will pop up.  If many aren't in your area,  expand to surrounding areas. 

Originally posted by @Lee S. :

I should have been more specific, I would go to a hard money lender or some personal friends for private investing for the rest of the funds.

Regretting asking for help at this point.  Thought this was a place to get help, apparently it's also a place to just hammer people. Never mind.

@Patrick Connell

 lol... feeling hammered? 

You definitely want to have the financing figured out and have a very clear exit strategy. More information always help.

Based also what sort of cash you have on hand and what the seller is asking for, there may be some routes to utilize. 

The cost of funds going the 'Hard money' route usually hits the profit quite a bit especially if the property doesn't sell as quick as you initially thought.

Thanks all, I'm not being overly sensitive just felt like the question I actually asked wasn't being answered which was how could I make an offer on a rehab with less than the full cash on my own for purchase and rehab while not putting a huge sum of money on the line if It didn't go through.

I could have made it clearer for sure, but i'm aware of potentially having to show proof of funds.

After looking at the house and discussing with contractor I'm going to put in an offer most likely at my price, which I can cover cash on my end.  I'll figure out the rehab funds, worst case is I use my own cash for that as well but it will just delay it a bit.  Holding costs are a non issue and if I get it at my offer price there is a 50-80k potential profit or I may hold it for a rental, either would be fine.

I have multiple potential private investors that I've already had initial discussions with and they are interested.  Let me ask this, if it came down to it and I had to go hard money on the rehab, is it easier to get a loan like that if I own the house free and clear?  Will traditional banks do a rehab loan? 

I do see how you can build relationships quickly in this business, i'm having to use an agent until I get my own license (waiting to take test) and both the agent and my contractor are interested in partnering with me on deals.

I'm assuming the property is in Cali so that might put you in a buyers market. Put in a resonable offer close to the amount being offered with a slew of contingencies. Also it shows that they have some wiggle room for negociations. And if they do accept your offer. Do your inspection and get bids for the work needed to be done. When you come back with your report, submit "your" counter offer. And if they don't except it. Move on. Oh and if they ask for your "findings" on why for such an offer. Tell them that you are willing to "sell" that information. 

Originally posted by @Preston Suzuki :

I'm assuming the property is in Cali so that might put you in a buyers market. Put in a resonable offer close to the amount being offered with a slew of contingencies. Also it shows that they have some wiggle room for negociations. And if they do accept your offer. Do your inspection and get bids for the work needed to be done. When you come back with your report, submit "your" counter offer. And if they don't except it. Move on. Oh and if they ask for your "findings" on why for such an offer. Tell them that you are willing to "sell" that information. 

 Thanks, that is the type of help I was looking for.  Property is in California.  I've put some thought into funding options this morning and I think I've realized I can access all the cash through current assets/investments to get this done on my own.

Personally, I like a little "hammering"--  which that makes me look at all angles of a deal.  Sometimes we want a deal to go through so bad that we only want to hear the positive things in order to justify it in our heads.  When we hear something negative, we take it the wrong way.  Trust me, we have all been through that.  I personally am grateful when people bring up holes in my deals as it makes me a smarter investor .... whether it is something I want to hear or not. 

You could also get pre-approved for a HM loan/private investor loan (contractually secure the funds) and then bring that with you to the seller and prove you have access to the funds. It might help. Alternately, if you can finance the full purchase price through your own finances as you have indicated, you could use that pre-approval for the rehab if it came to that. Just make it clear to your lender/partner that that might be the case. 

@Lee S.

How are you putting an offer in?  Are you a realtor or are you using a realtor?  Dual agent?

Seems like a realtor would offer some plan to submit an offer in a local market like "California"

Originally posted by @John Weidner :

@Lee S.

How are you putting an offer in?  Are you a realtor or are you using a realtor?  Dual agent?

Seems like a realtor would offer some plan to submit an offer in a local market like "California"

 I'll be an agent shortly, just waiting for CalBRE to process my application so I can take the test.  I'm working through a new agent and the main Broker where I'll be working.

The reason I put "California" and no last name is I want to feel free to discuss whatever on the forums without locals reading every word.  Some people like privacy, some don't care.  I had a personal photo up until last week. 

Your not an agent yet so then I would recommend contacting the new agent you are working though to structure the deal based on the local boards contract.  

Dude, if you've got 60% of the money, you can put the deal together not problem.  If the deal is right the money is always there. 

If you need a POF letter for an offer, I'll shoot you one whether you want to use my money on the deal or not, you legitimately have access to the money I broker, though. Pretty easy to do loans at 50% LTV.

Like has been said, getting those kinds of deals is a long shot though. You'll lose friends fast in this business if you waste their time. I laugh at people when they want me to go look a property they don't have under contract. Anyway, I dont know about Cali, but around here you usually have to fire off about 40 MLS offers or so to get one accepted at a decent price. Lots of "highest and best" scenarios when they are priced right. I made over 100 in 2013 and was getting laughed at because people were over paying so much for everything. Don't know if I got a single one from MLS that year. I usually pull 2-3 from there depending on how hard I try.

I didn't see anyone hammering people on here, btw.  This place can be kinda blunt, but man what a resource.  I'd have killed to have something like this 15 years ago when I was learning this stuff...

Originally posted by @Darrell Shepherd :

Dude, if you've got 60% of the money, you can put the deal together not problem.  If the deal is right the money is always there. 

If you need a POF letter for an offer, I'll shoot you one whether you want to use my money on the deal or not, you legitimately have access to the money I broker, though. Pretty easy to do loans at 50% LTV.

Like has been said, getting those kinds of deals is a long shot though. You'll lose friends fast in this business if you waste their time. I laugh at people when they want me to go look a property they don't have under contract. Anyway, I dont know about Cali, but around here you usually have to fire off about 40 MLS offers or so to get one accepted at a decent price. Lots of "highest and best" scenarios when they are priced right. I made over 100 in 2013 and was getting laughed at because people were over paying so much for everything. Don't know if I got a single one from MLS that year. I usually pull 2-3 from there depending on how hard I try.

I didn't see anyone hammering people on here, btw.  This place can be kinda blunt, but man what a resource.  I'd have killed to have something like this 15 years ago when I was learning this stuff...

 thanks.  I know it's a low probability of the offer getting accepted but the offer is based on the numbers.  If some one else wants to come pay too much for it then that is their problem as you know and just described.   House has been listed previously then taken off the market and now relisted but we can't get the old info because it was listed by an out of area broker.  I'm hoping that a cash offer and quick close will increase my odds.  If they reject the offer, on to the next!  I've given my self some room to negotiate but I have a max price i'm willing to move up to.  I may be in touch soon.

@Lee S. - I came across this post seeking some info on structuring offers knowing I would need HM to fund (but no approved lender - would use the contract to seek funding as you were thinking). Curious since this was a yr ago how this went? Also, curious if you ended up, or have in other endeavors, used HM to fund your deals and what advice you would give to an inspiring investor. 

I'm essentially trying to figure out how to structure/write offers (from the MLS) on properties that have been sitting on the MLS for 90+ days, but I have limited cash funds (~15K) so I have to seek HM. Getting pre-approved is not always easy, given they approve on assets not people. How would I write the offer to include proper contingencies and exit strategies that keep me from losing my EM.

Thanks for your help and any insight you might be able to provide.

Originally posted by @Stephanie Hart :

@Lee S. - I came across this post seeking some info on structuring offers knowing I would need HM to fund (but no approved lender - would use the contract to seek funding as you were thinking). Curious since this was a yr ago how this went? Also, curious if you ended up, or have in other endeavors, used HM to fund your deals and what advice you would give to an inspiring investor. 

I'm essentially trying to figure out how to structure/write offers (from the MLS) on properties that have been sitting on the MLS for 90+ days, but I have limited cash funds (~15K) so I have to seek HM. Getting pre-approved is not always easy, given they approve on assets not people. How would I write the offer to include proper contingencies and exit strategies that keep me from losing my EM.

Thanks for your help and any insight you might be able to provide.

Hi Stephanie, I actually can't remember the details on this deal or what house was involved.  I've done a couple since (purchase and rehab) but used a private lender for purchase and rehabbed with my own funds.  I'm in the process of adding another private lender and also gettting as liquid as I can so I can close on deals when I see them.  I've spoke with a few hard money lenders also just so I know it's an option if necessary.  They are more willing to work with people with a track record but I'm sure if you have a proper deal they will find you.  I would strongly recommend getting on the phone and talking with a few, they don't bite and you will feel better about moving forward if you have those conversations ahead of time.  Feel free to pm me if you want to discuss anything further.

I have hard money lender based out of Calabasas CA that would do this scenario (if the numbers are accurate). If you're interested I can relay his information? They would want to see the traditional package of course..statements, cost break down, etc. I also agree with some of these guys on the thread. Sometimes we need different opinions on the scenario in case we get mesmerized by the "potential"!

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