Flipper · Minneapolis, MN · Member since 2015 · 33 posts · 9 votes
I'm offering 55k on a 75k property with a conservative ARV of 120000. The rehab project has been somewhat started but can no longer be completed due to health issues. But after a walk-through, its seems there still needs at least another 30k into it. He has put 65k into it total and has no money for closing. How would you make this deal work? Should I pass or how could I make this work out for both parties? Any feedback would be appreciated!
Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
10y
@Xai Xiong You have to stick to your numbers. If he is not able to sell to you at the price you need to buy it for, then you have to pass. Not sure what him having money to bring to closing has to do with you buying it? you could cover his closing costs, but if he owes more than you can buy it for, then it may not work.
Real Estate Agent · Minneapolis, MN · Member since 2015 · 112 posts · 40 votes
10y
For me personally, I don't like those numbers. Seller has put in 65k and it still needs 30k and the ARV is only 120k. Something is off there. I would find something wwith a higher ARV. I know the area and there are tons of deals where you can stick 100K into properties with ARVs around 150k-200k+ depending on the area. I have a buyer now that will pay 200k for a nicely remodeled home, semi-open floor plan and area doesn't matter to them. If there wasn't a conflict of interest, I could easily find an all-in deal at 120k and sell at 190-200k. I say that because in our market, seller's are currently seeing multiple offers on nicely remodeled homes which is making it hard on buyers. If you have a good product for rehabs, I would look at areas with higher comps.
Wilmington, DE · Member since 2015 · 121 posts · 36 votes
10y
Seems like the deal would be pretty tight if I understand you correctly. If his bottom line is $65k and you have to pay closing costs (say roughly another $5k) that puts you at $70k. Plus your renovation of $30k puts you at $100k. Plus holding costs and eventually another settlement. I think it would be reasonable to expect your total investment to be up in the $105-110k range on this deal. Your profit margin at that total investment is pretty tight (in my opinion at least).
If you buy into the 70% rule your max purchase price should be $54k. That's 70% of the ARV ($120k) minus the repair costs of $30k.
Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
10y
I never force a deal. It has to organically work or I move on. Seems like it's not the right one. I agree with Tim, something is off on the numbers. First no one would sell for 75 if they put $65 in unless it's just a walk away for them. I've also seen where people just get in way over their head thinking they can finish and everything will work out ok.
Investor · Coplay, PA · Member since 2015 · 404 posts · 315 votes
10y
This is not to say this is a good deal or not. This is just a way to make the deal work for both people. You have to decide if you want in or not.
You offer him $65,000. With a guarrent of $55,000. With the other $10,000 coming out at the end after your profit when it it sold. Sells for $120,000 minus your$ 55,000 plus $30,000 investment. That leaves your profit of $35,000. Anything over $130,000 you will split with him 50%. You draw up a 2 year agreement of sale or longer whatever you are comfortable with.
Have your lawyer draw up the agreement and file the agreement at the courthouse. Have your lawyer check the deed just like you are closing.
This will save the closing costs. He does not get any money till it is sold. You just are responsible for the rehab and selling the property.
Flipper · Minneapolis, MN · Member since 2015 · 33 posts · 9 votes
10y
Yes the numbers didn't really work out so I had to move on. Thanks for all the tips! I currently have 2 offers out there on 2 properties. But always looking for deals.