Who Is the End Buyer for These Deals?
Hi BP folks,
I have a question about a couple types of properties I keep seeing, and I’m genuinely curious how these usually play out. Both have been sitting on the market for a long time.
1. Long-term owner, investor-style layout
The seller has owned the property for many years and is likely cash-flowing fine at their basis. For some reason they listed it, but at the current asking price the cash flow is deeply negative under today’s rates. There have been no price reductions, and the seller seems very confident the property is worth the list price.
The house has been divided into smaller rooms, so it’s clearly more suitable for rentals than for a typical owner-occupant family.
My question is: what usually happens to a property like this?
Would an investor eventually buy it at that price, or does it typically sit until the seller adjusts expectations?
2. Flipper with value-add, but investor-negative numbers
The second type is a flip/value-add property. For example, a house bought by a flipper at ~$500k, with some improvements done (like converting a carport into a studio), then listed around ~$700k.
At that price, even with 25% down and a 6–7% interest rate, the cash flow is also strongly negative. It’s been sitting on the market for quite a while.
Phoenix feels like a fairly mature market, so I would assume the flipper thought through who the end buyer would be after the value-add. But if the likely buyer is another investor, the numbers don’t seem to work unless the price is closer to ~$480k.
Why would a flipper pursue this kind of value-add if the deal only works at a much lower price?
What typically ends up happening with properties like this?
Curious to hear how more experienced investors view these situations.