Getting creative with a potential off market flip

6 Replies

Hi Everyone,

I am looking to purchase a single family, in Chandler, AZ, and have been out bid a couple of times already. The MLS drops a new address and it's under contract within 24 hours. So I am trying to be creative to avoid over paying for a property. My plan is own for 1-2 years and rent out and buy again. Full disclosure this idea was sparked from reading forums here and Bigger Pocket podcasts. I am a newbie, so may be missing important pieces. Open honest feedback and reality checks are welcome!

Here's the proposal- I have a friend/acquaintance who flips homes. I'm thinking of pitching him a guaranteed buyer (me) and a profit for him. I believe these numbers are close. (again I am open for...that's illegal, can't do that, or dang go get it, girl)

Possible (Hypothetical) Option

$300,000 ARV

Purchase price of home $160,000

Reno/Repairs                    50,000

Single Agent Fees              9,000

Carry Costs                       2,000

Total Investment (Friend) $221,000

I buy for $300,000  his profit 26% return $79,000

We write a contract up that states the agreed upon purchase price and timeline and friend sells it to me off market.

No bidding wars, no GC headaches, turnkey home for me

No unexpected carry costs, marketing, a single agent only fees for friend

I did read that friend can't sell it to me for less than 25% market value which leaves me a potential immediate equity but could be discouraging for him since he could potentially make more from this project. I appreciate you reading my proposal and looking forward to your feedback!

The concept is fine.  You could do this.  Whether you would want to would depend on the return you think you can get from renting.  

I'm not sure where you got the idea that your friend could not sell at a discount.  As a flipper, there is value to your friend to have secured an end-buyer without the time to market / close that he would otherwise have. He could discount it if he wanted to, but he may not want to if the market is hot.    On the other hand, I'm not sure why you have any agent fees in there.  If you have a person-to-person transaction, you really don't have to have an agent.  As a newbie, I understand why you might want to, but that is optional.  I'd still get the house inspected.

If you have this personal relationship with the flipper there should not be a reason you capture some equity at closing, even if it is nominal.  If you paid $291K with no agent, your friend is no worse off.  If you start the purchase process early, you could shave off weeks of holding costs which also have value to your flipper friend.

@Greg Scott Thank you for your feedback! Wonderful idea of starting the purchase process early! Also, yes I would definitely still get an inspection.

I read an article that from homelight.com which included this excerpt:

*The actual percentage will vary based on the specifics of your situation. However, setting the price at an amount above 75% of the home’s fair market value is a good ballpark percentage to start at.

If you give your relative a discount of 25% or more off of its fair market value (FMV), you could end up in the crosshairs of the IRS.*

I was referring to the equity in the case, if I buy for $300 but it appraises at $325 that's $25 in equity correct? I may be confused.

Our rental market is as hot as our housing market. I now have a turnkey that I live in gently for a year I should be able to cash flow min $300 and should potentially have less problems cause it is a newly reno'd home. These are my thoughts anyway.

If I drop the agent fees, would you recommend an attorney for both our protection?

Thank you so much for your response!

Just a quick thought regarding what you proposed with a flipper. Most flippers I know who work that area would want to put it on the market where the competition is likely to fetch more than asking. It would take a special friend who would want to possibly forego the higher offers. Or someone who values the convenience of having a buyer pre-arranged. Or maybe you're the one offering higher than market (probably not recommended :)

I am part of a network of investors who buy and sell (or even assign) deals creatively. If you're looking for something in this competitive market, it might be worth your while considering taking assignment of a subject to or seller finance deal, or even a property being sold on a wrap. I'm happy to take some time to explain if you're not sure what those are. Lots of benefits to this as well, first and foremost not having to deal with the banks and all that rigamarole. If you're interested I could take what you're looking for, put it out in my network and see if anyone has anything. Are you looking specifically for Chandler? Open to Tempe or Gilbert?

Originally posted by @Louise McEwen :

@Greg Scott Thank you for your feedback! Wonderful idea of starting the purchase process early! Also, yes I would definitely still get an inspection.

*The actual percentage will vary based on the specifics of your situation. However, setting the price at an amount above 75% of the home’s fair market value is a good ballpark percentage to start at.

If you give your relative a discount of 25% or more off of its fair market value (FMV), you could end up in the crosshairs of the IRS.*


This recommendation from Homelight.com is garbage.  Ignore it.  In an arms-length transaction, the price is the price. 

This recommendation sounds like advice someone might give when selling a house to a relative, like your child.  Selling to a relative, the purchase is generally not an arms-length transaction.   A discount could be perceived by the IRS as a taxable gift.  Imagine someone selling their $10M ocean-front estate to their kid for $100,000.   Buying a $200K home for $130K from an unrelated party is perfectly legal.

@Geoff Husa Thank you for your response! Yes, my concern before pitching to him was also, I didn't want to insult him because of how the market is currently. I am trying to avoid offering higher than market, which seems to be what has happened in the offers I was out bid on already.

I am semi familiar with seller financing. However, subject assignment and selling on a wrap I am unfamiliar with. I would appreciate the knowledge of how these two work!

Yes, my desired boundaries include a small corner of all three: Tempe, Gilbert, and Mesa, and the majority of Chandler.