The 1 Acre House

8 Replies

Property: Brick / Block 1570 sqrft 3/2 with additional office built in 1956 on 1 acre lot (most lots in area .5 acre or less)

ARV : $185,000 (used $180000 for profit calculation to be safe)

*Same house 2 doors North sold 2 months ago for $193000*

Purchase Price: $90500 (seller will finance with no payments for 6 months)

Holding Costs: $2000 (No mortgage payments due to seller holding note)

Rehab Cost: $43000 (contractor will estimate before we sign)

Selling Costs: $21000 (if I have to pay buyers closing costs)

Profit: $22000

The house is a time capsule with a workable floor plan. I need to knock out 1 non load bearing wall to open the kitchen to the living room. This will allow a slightly larger kitchen and a much improved floor plan. Need to redo 2 bathrooms and put new floors in the whole place. Carpet in bedrooms and office, engineered hardwood in the living area and tile in the bathrooms, kitchen and laundry room area. House is also do for a new roof, but decking seems to be in good shape and should need minimal work and the attic is as dry as a bone. The only thing I don't like is that all the bedrooms share 1 bathroom. I'd like to find a way to give the master sole access to the, currently, common bathroom but I'm not sure how to do it and make it cost effective. House also has new AC and heat pump and new water heater. Main electrical panel has also been replaced along with the outside meter panel and disconnect. 

I'd be curious on what you all think? I'll get pictures when I head out with my contractor. 

Tom

Also, this will be a fix and flip deal.

Tom

Good luck with the project Tom.

Any chance of subdividing that lot and building a second home?

@Chris Vacek

The thought crossed my mind but I think that's a bit ambitious for my first rehab. I'd also think that getting that done with the county might be tough but I haven;t investigated it. I am considering adding onto the house to increase it's square footage but I need to get with my contractor to get an idea of cost. As it stands, if the seller will carry the note with no payments for 6 months I should be able to fund the whole rehab with my own cash. If I decide to add on to the house, I would need to take a loan which may or may not make sense depending on the ARV of a bigger house. The immediate focus is on getting it under contract. I am right at the bottom of what the seller will accept I think and I am trying everything I know to get it to work. The sellers daughter is a real estate agent so in addition to paying them more for the house if they carry the note, I am promising her the listing as well. That could be another $10k or $11k in their pocket if they can avoid splitting the commission.

Tom

Unfortunately this one will was not meant to be. The buyer backed out today believing they can sell it on the market for more than I am offering. Oh well, that's how the cookie crumbles. I'll follow up with them in a month or so and see how it's going. 

Tom

Not as easy to sell a house on MLS when it needs 43k in rehab. Thats some serious deficiencies there.

Don't write it off just yet. I'd consider following up with them in a couple of weeks to see how its going. Tell them that if they change their mind, to give you a call.....

btw: Any chance THEY might partner with you on the deal?

They continue making the payments. You pay for the rehab out of your pocket. After you sell, they get their purchase price (90,500), you get your rehab costs back and then you split the rest of the profits above your originally agreed upon purchase price with them.  So they get their 90,500 first, then you get your 44k rehab, then you split the profit remaining after all closing expenses.

Assuming your numbers are there, half of 22k would be 11k.

Might be a nice teaser for them to want to basically flip their own house.

And if you can get half that profit on the deal, that would be better than nothing.

@Mike H.  Great plan.  I love situations like this where out of the box thinking can make the deal happen.  

How would the risk work out on this?  What happens if for whatever reason they don't realize that 22k profit?

Well, the pitch to him would be - if we only make 10k, then you only get 5k above your purchase price. But Mr Owner, that also means that you aren't going to get a better offer in the condition that its in today.  And don't forget. If we get 30k in profit, you get 15k more.

The real concern is whether its worth it to you to put up 44k to make 11k. You're taking a risk in any flip you do. And this one you're limiting your upside a bit by splitting. But you're also limiting your downside somewhat too.

Bottom line is that if this owner is trying to sell a house in as is condition, people are going to expect to get it at a premium discount above more than just what the repairs are going to cost. Otherwise, they're just going to go buy a move in ready house and not deal with the risk and headache of a major rehab.