How can I make this deal work? Would an option be my best bet?

Question

Met with a seller today (Called one of my bandit signs), long story short the owner is on a waiting list for elderly housing closer to his family and his house is just what i'm looking for. Owns outright, interior is 30 years outdated all the way through, perfect neighborhood, and I think I'll be able to help him out of a potentially difficult situation. I told him I'd come back with an offer on Monday, but here's the thing:

He is on this waiting list and could be notified any time between next week and the next 5 months that a spot has opened up for him, and he'll have to move QUICK or he'll be put back at the end of the line (which he DOESN'T want). He has nowhere to stay until that time, so he wants to stay in his house until they tell him he's good to go. (I think they're gonna give him a week or two advanced notice, but I'm not certain)

I'm working on what my offer is going to be, but I'm curious what options I have in this situation.

I'm looking to wholesale the house, what are my possible ways of working this deal to be a win-win for me and the seller?
Would it be possible to put the property under contract with the agreement that he can live in the house for a certain period of time and leave whenever he has to, and deduct "rent" from the sales price? Would an option be better? or is there another way to work this deal so that he's happy and I'm able to make it work?

Thanks in advance! -Chris :mrgreen:

Chris Oshea · Answer

I've got a handful of cash buyers waiting for deals, and I didn't mean I was thinking of getting the owner to finance the deal and then flipping the contract... I had thought "Gee, if I had the $$$ myself maybe I could see if he'd be willing to finance it himself and I could buy the property myself". What I'd LIKE to do is just wholesale the property assuming we can agree upon the right price.

David, are you saying to pass the lead on to one of my buyers and collect a referral fee if/when the deal closes? That's a possibility, though I'm thinking the option idea is what I'm going to try and work with.

David Breitzmann · Answer

Chris,

At the onset of a business plan, frustrating but always a huge arc of learning. I understand this quite well.

For this to net a few thousand in finders fees do you have a buyer in mind? The property is usually under the control of said finder. Though, I have heard of contracts where buyers are willing to pay finders for any property they locate that their "buyer" closes.

The legality of acting as a "finder" depends on the state. In some areas, such actions are forbidden unless you have a RE license.

(Frankly paying finders is sensible because this is mutually beneficial and allows the end-investor to focus on automating their business instead of the time heavy project of finding properties).

Bill Gulley · Answer

I don't think you have a deal here right now. If your goal is to flip this option in a week, what kind of buyer are you looking for? One that says "sure, I'll agree to buy this place, someday under the cicumstances of having the owner live there for an undeterminable amount of time". Don't you think that will limit your market?
Who will your buyer be? A cash buyer can pull off anything you can dream up. However, let's say your buyer needs a loan. If you do the deal and the seller lives there knocking off rents off the sale price this will cause problems. For financing, this wil be a seller concession that will lower the effective sale price. Your seller can be taxed on money he won't receive and he can't deduct rental payments.
This won't be a marketable deal until the seller moves out or is close to moving. How do you market a property with possession being unknown?
You can do an option. Stipulate when your right to purchase begins in the future. Why go through all the credits arising from of preceived rents, the seller still owns the place. His staying in the property is an issue that should be taken into consideration in the initial price, guarantee a time certain that he his to remain in the property. You can put this under contract today and just sit on it (assign it if you can, but...) when it gets close to the time for him to vacate, then market your deal. This aspect is what Brian pointed out as well.
If you attempt to find another buyer for this guy, you will have the same problem with possession for any buyer and really see you acting in the capacity of a real estate agent. If you continue spending your time on this deal with the great expectation of pulling some quick cash out, you'll be losing other income opportunities since I really doubt that will happen due to the possession issue. Forget the fact that it needs repairs and updating, it's worth what it's worth to you in that condition to wholesale. Do an open option, tie up the property for future income and move on. IMO, Bill

Chris Oshea · Answer

I'll be figuring out what a safe offer is tomorrow, I'm gonna see if we can agree upon a price that works for him and me, and if we can, I want to get control of the property. I guess what I'm looking for is HOW I should get the house under contract. I'm not in a position to buy the property myself even with owner financing (believe me, I thought about it), and doing a lease-option would do me no good because of the extensive repairs the house needs (And my lack of funds). What I really need to do is just wholesale the contract... I need the money BADLY to kick my marketing plan up a notch or two (Currently very low budget with no income)

I'm thinking I'll offer the option idea and if it works for him, great. If not, the goal is that my marketing efforts will be bringing me leads like this one on a fairly regular basis (even if not as frequent as I'd like right now)

I'm thinking I'll offer the option idea and if it works for him, great. If not, the goal is that my marketing efforts will be bringing me leads like this one on a fairly regular basis (even if not as frequent as I'd like right now)

Mike C · Answer

Chris,

I believe you may be getting ahead of yourself. At this point, the guy is a prospect but nothing more. You donâ€™t have anything until you find out what he is willing to sell it for, what it is worth and what the repairs will be. Until you know these things, the rest is irrelevant. Once it seems like a potential deal, then you have to get him to agree to it. You said you wanted to flip it but you need to know the above questions before you can make an intelligent offer. Anyone you flip it too will want to know (as they will have to update it) what the updates/repairs will be and if you have that info you will look more professional (have a contractor walk through if you donâ€™t know yourself). Yes, they will verify and get their own estimates, but if you have a good one to provide it will really help. Why does this matter? Because if he has an unrealistic view of what the house is worth, having it under contract isnâ€™t worth anything if he wants too much and/or you canâ€™t get the home for a good price.

Now assuming you can get it significantly under value and have an idea of what the needed updates are, then you have some options. My comments below assume that all the numbers are good.

As suggested, an option so you have first rights to the home when he moves is all you need. A simple one-page contract is all you need for now. If you can lock up the home for a good price, I would do so. But after he moves, the first option to me would be to get him to owner finance it for a bit of cash flow for him and less taxes due to him (may not affect him if the price isnâ€™t high or if his primary residence exemption may fully cover him). He is a perfect candidate for this since he isnâ€™t collecting any money on the property now and may not need all the cash now. You might get a low payment and have a nice asset to get you started. Maybe he doesnâ€™t need much down or you can afford the updates yourself and should keep it if you can (IMHO). If he wants all cash (I would be convincing him otherwise depending on his tax status) then flipping it is your only option. If that is the case, the spread between what it is worth and what you can get if for cannot be too big. But only you can decide what margin you need. Leave yourself plenty of margin of safety and you should do ok.

Best of luck

Mike C

Bill Gulley · Answer

Hi Chris, this is a very good situation for an option. Simply use an option say for one year. Seller is to give you notice when he is prepared to close. His notice will start the clock and you agree to purchase within the agreed time. In the event the seller fails to give notice within say 6 months, your clock starts ticking and you have the option to purchase at any time over the remaining term of the option. For this, an Option price of $100.00 should be sufficient. Bill

Brian Levredge · Answer

It sounds like a short term option would work the best. You guys agree to a pre determined purchase price and you get something like a six month option to exercise it at that price or conditional upon his moving out. You would probably need an attorney to draw up docs but if the deal is that good, it's worth it to spend a couple of hundred bucks extra to protect yourself. I can't imagine too many end buyers would want to take the property from you with a tenant in it that may not leave for six months. All that does is tie up their money since they can't rehab it and put it back on the market.

How can I make this deal work? Would an option be my best bet?

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