5,000 sqft lot, 1,000 sqft house. 3 bed 1 bath. High density zoning, able to build apartments or condos. ARV for comparable development projects 1,400,000.
The initial strategy was to take the existing loan sub-to ($163,000 + $20,000 in reinstatement fees), get the seller some cash at closing ($20,000) and then some additional owner financing ($45,000 for 1 year, 4% interest only payments). This was done in order to make the deal more appealing from a development standpoint. The terms would allow a developer to save money during permitting and prior to construction.
Since the property is zoned RH (residential high density) , I got it under contract at $240,000 and was hoping to wholesale it to a developer for a $20,000 wholesale fee. They would then demo the existing house and build condos or apartments. There’s a similar lot with condos on it less than 5 blocks away. Sounds easy.
Except my baby has some defects…There’s a strip club close, only on street parking, and near a busy street. Worst of all, nobody wants to hold it… I mean buy it.
You can't flip it, the ARV for the existing house is $290,000 and est repairs are 30-40k. That leaves no room for cash to seller or a wholesale fee.
I will still wholesale it, however, the only option I see is renegotiating this in favor of a subject-to hold. Payments are 1,100 PITI and it could rent for 1,500 to 1,600. Then it could be flipped down the road in a few years or kept as a long term rental.
The numbers would look something like this:
Reinstatement amount: $20,333
Repairs (to get rent ready): $10,000
My wholesale fee: $5,000
Cash to seller:?
Buying costs: $35,333 + amount re-negotiated with the seller
I’ve said all this to ask, How would you approach the seller to renegotiate this situation? Remember, This guy has thought for the past 2 months that he will be getting a total of $65,000 out of his property, now you have to go back and try to get him to take a fraction of that. He has a small daughter in the 1st grade and wants to use the proceeds from the sale to move into a mobile home.
Looking forward to your responses
Oregon, Portland, Washington
@Taylor Shields Hopefully you were up front with him at the start and said you were going to wholesale it. If that is the case, you'll have to go to him and say, "This is what I thought would work. I apologize. I was wrong. This is why it hasn't worked. I still can move this property for you, but it will have to be a buy and hold deal, not a development deal. And for that, we'd have to restructure the deal this way."
If you didn't disclose that you were wholesaling up front, you'll have to come clean.
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