Excellent potential house flip (Advice Please)

11 Replies

I would like to get some opinions about a particular deal that I am working on closing on and how I dealt with it just to this point. I received a call from a man who had a house for sale at 750k. I went through the questioning process.

How much the house is worth? 750k

What renovations needed to be done? He said there were none

I then asked him what is the minimum he would accept? He said 730k

I thanked him for his interest and for the opportunity and I wished him the best of luck in selling it and as I was getting ready to hang up (I try to keep these sort of phone calls short)

Seller: “Wait a minute how much would you be willing to pay?”

Me: I would offer you a maximum of 550 but probably something closer to 500 for the house”

Seller: Laughing “Let's make an appointment for you to see the house”

Me: “I will not pay anything more than 550 so if we are making an appointment it is because you are telling me that this is an offer that you would be willing to accept”

Seller: “I understand.”

I went to go and take a look at the house after pulling comparables, I drove around the neighborhood which is a neighborhood that is not uniform it is a high class rich neighborhood where establishing an ARV is a challenge due to the lack of uniformity.

This was a man living in Canada but who is from another country and the reason that he's selling is because he doesn't live in the house and he doesn't want to continue making the mortgage payments. He also had a Canadian business partner with him who obviously was acting as an advisor.

I offered 350k upfront for the house with 200k to be held by the seller as a 2nd mortgage at 4% to be paid at resale of the house. I wrote out the offer and handed it to him with a deadline of 5 days.

He called me after the deadline and counter offered 600,000 while leaving me all the inclusions in the house such as a 1,200 bottle wine collection and all the furniture in the house but, instead of 550 he wanted 600k. I am planning on doing a counter offer of 550k plus the average appraisal value of three home liquidators because I highly doubt that I can liquidate the contents of his house for 50,000.

I should also mention that combined with my conversations with 3 experienced agents and comparables sold I evaluate the ARV at 710k with 10k of renovations.

I would be very interested in having some advice on how to approach this negotiation in a way that would maximize my chances of having a signed and accepted offer.

Disclaimer: I have no experience with flipping. You sound like you know what you are talking about, but just so I can feel better I would like to mention, to meet the 70% rule you would have to get the house at under 500k for sure. Your offer is at ~80%. This guy is asking you to buy the house at closer to 85% ARV. You still make a good profit if your comps and renovation budget are close to right even at that 85%.

I've always heard people say, choose a number you will not go higher than and stick to it. You choose that number at 550k to start and have raised that to 558k (because of the 4% seller financing.) The question is, do you want to chase the deal and is it worth chasing? If not, put your foot down. He seems to be playing games. You aren't.

Like I said, take it with a grain of salt. I'm a newbie.

William,

Is this in the west island?... just west of Mont Royal?

Is the furniture of quality?  Same question for the wine?    Since the house needs minimum rework, you may be able to flip it with the wine cellar and furniture in-place.  That said, I'd offer no more than 15K for the contents (if they were of calibre) ... unless they are of high quality, they will be a detriment more than asset.

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

Originally posted by @Matt Gehrls :

Disclaimer: I have no experience with flipping. You sound like you know what you are talking about, but just so I can feel better I would like to mention, to meet the 70% rule you would have to get the house at under 500k for sure. Your offer is at ~80%. This guy is asking you to buy the house at closer to 85% ARV. You still make a good profit if your comps and renovation budget are close to right even at that 85%.

I've always heard people say, choose a number you will not go higher than and stick to it. You choose that number at 550k to start and have raised that to 558k (because of the 4% seller financing.) The question is, do you want to chase the deal and is it worth chasing? If not, put your foot down. He seems to be playing games. You aren't.

Like I said, take it with a grain of salt. I'm a newbie.

@Matt Gehrls Thank you for the advice, the way that I calculated the math is as follows:

ARV = 710k

710k - 208k = 502k (Money that comes back to me after paying 2nd mortgage and amount that I use when doing 70 percent calculation)

350k / 502k = 69.7 percent

I calculate 70 percent based on the total money out of pocket that I will be spending or investing so it is as though the ARV that I need is 502 thousand.

I agree with you in that I think he is acting flaky and I am near my limits, however I do not want to walk away from this while there is still a chance of making 152 thousand dollars gross profit.

Originally posted by @Roy N. :

William,

Is this in the west island?... just west of Mont Royal?

Is the furniture of quality?  Same question for the wine?    Since the house needs minimum rework, you may be able to flip it with the wine cellar and furniture in-place.  That said, I'd offer no more than 15K for the contents (if they were of calibre) ... unless they are of high quality, they will be a detriment more than asset.

 This is in an upscale area of Laval, thank you for the advice on the assets I am going to take it and see where it leads me.

Obviously Laval has changed since I lived in the area ;-)

Medium greenapartmenthires 1024x1024Roy N., Louer Louer Ltd. | 1.506.471.4126

Is that how the 70% rule works normally? Told you I'm inexperienced. That kind of money sounds fantastic to me.

Originally posted by @Roy N. :

Obviously Laval has changed since I lived in the area ;-)

 Yeah, since the metro system was extended from Montreal our property prices have almost doubled.

Originally posted by @Matt Gehrls :

Is that how the 70% rule works normally? Told you I'm inexperienced. That kind of money sounds fantastic to me.

 I adapted the 70% rule, if I am never going to see the 208k and I am also never going to be paying it out of my pocket I calculate it out of the equation for the 70% rule.

@William Johnson That's an interesting way to think about it. I like that. Thanks for sharing.

hi @william Johnson 

It's really hard to close at 70% on the first meeting. A good advice for you is if you Want to bring your client to sign, you have to be firm and confident on your price and your capacity to buy the house quickly. Then If you have an opening on is part, meet him as soon as possible, (I can go with you if you want) then close him on the spot by telling him all the things you coule do to accomodate him (fast closing, buy his furniture, pay for is closing cost, etc...)

Olivier Lepage 

Originally posted by @Olivier LePage :

hi @william Johnson 

It's really hard to close at 70% on the first meeting. A good advice for you is if you Want to bring your client to sign, you have to be firm and confident on your price and your capacity to buy the house quickly. Then If you have an opening on is part, meet him as soon as possible, (I can go with you if you want) then close him on the spot by telling him all the things you coule do to accomodate him (fast closing, buy his furniture, pay for is closing cost, etc...)

Olivier Lepage 

@Olivier Lepage I wish I would have gotten this message last night because I have a meeting this morning at 11 a.m. I would have invited you to come along with me. Let's hope I close it anyways. At any rate you can be sure that I will be in contact with you if I do close this deal.