California Deal.. What am I missing?

[Brent Davis]

I am an agent but this is not my listing, I am an investor on this deal..

Property is owned free and clear by a non-profit. It has been sitting on the market for 9 months and they refuse to lower the price or take a cash offer for under asking.

Asking is $775k

I want to put it under contract for $650K and have the existing agent take it off the market during rehab.

My partner and I do the rehab.

Let the current agent put it back on the market.

My partner and I will be responsible for the commissions and closing cost at sale.

The numbers:

$850K ARV (conservative)

$650K Contract sale to us

$85k Commissions and closing cost (using 10%)

$50K Rehab costs

$65K Profit

My rationale for getting the contract price I want is that it saves the seller from paying any commissions/fees, so why not give it to us at a discount? Keeps us from having to get private or hard money which would kill the deal.

It's a great house in a country club area, rehab is pretty cosmetic and the ARV is closer to $950K in this market but I want to be conservative.

Worst case if we can't sell, the owner carries at $650K and we rent it. Market rent is $4500.

Am I reaching on this one? What am I missing? How would you structure this?

Any help is greatly appreciated!

Thanks!

[Account Closed]

I wouldn't do it unless I could really control the property. My thinking is that the nonprofit's legal advisor isn't going to be too keen on letting you improve the property during your contract period anyway. A down and seller carryback might be a possibility, but you'd have to have a real down. And it doesn't sound like there is one.

You say the nonprofit hasn't accepted cash offers that have been below asking. So why would they accept $650K, which is $125K below asking? Even if the agent gives up their commission, that would be $728.5K. How does your offer save the nonprofit money by buying it at $650K?

Does the seller have a problem that needs your help? What's preventing the property from selling at $775K? I find it hard to believe that a $50K cosmetic rehab is keeping all the retail buyers away.