Hello BP members,
I have my first of 2 call backs from my yellow letter campaign. I literally sent out 5 letters 3 days ago and have 2 call backs. Both are FSBO's and one owes a small loan amount and the other is free and clear. The free and clear is selling for $1.7mil and is worth $1.9mil. Yes I am the guy who aims for the stars in all that I do. So I'm going to look at it tomorrow. Its on the water with a dock pool 3.5 acres 4000sq ft etc. So my question is how in the world should I go about this one. Should I wholesale it to someone or should I attempt to do a lease option to a high end lessee who can afford to put 3-4% down and pay rent there instead of the traditional 20% down most banks are asking. Her house has been on the market for 2 years now. Oh added details, I have a very deep pocket investor who I've linked up with seriously an unbelievable blessing so I'm wondering should I wholesale it to him. Any feedback is welcomed! Thanks everyone
At $1.7 million, I wouldn't think you have enough margin for any investor. You're at 90% of ARV already, and you haven't said anything about whether any repairs or updates are needed.
A lease option with a Sub 2 is probably your only option. Although, I don't know what the Lease Option market at that price point would look like, and I would think it would take some time to locate someone like that. You might want to consider simply putting together an Option Contract, so that you actually have a beneficial interest to market, and then exploring some of the more creative options.
In my opinion. :)
Thank you @Hattie Dizmond
For the response. The house needs small updates, to the kitchen and some new paint etc. My value was off a little after I ran some detailed numbers when I got to my office. The home would appraise at $1.9 and I can buy from the seller who has it actually listed at $1.5 not the $1.7. My investor likes those numbers as he wants to either resell or do purchase and do owner financing on it. As far as me doing a lease option on it, that is quite possible. I have my own property management business and have seen a spike in high end rental inquiries in my area. There is a market of potential tenants, my question is approaching the owner with that option since she is widowed and owns free and clear. If I did wholesale it would I simply get it under contract, do my due diligence and run title search etc, and then do a sales contract with my end buyer (investor) at a slightly higher price? Please correct me if I'm wrong. I've always been on the property management side of investing. Thanks!
If you're wholesaling, you're either going to assign the contract, which means you're out long before closing, or you're going to do a double escrow closing. Either way, the title company (or closing atty, whichever it is in FL) does the title search and all that. You would have already executed a purchase agreement with the seller. The HUD statement is the actually sales contract, again prepared by the title company.
As for approaching the seller, you have some options. She's a widow in a huge expensive house. You need to figure out what she needs. Does she simply need a smaller, less expensive place, or does she need to cash out? Is she looking for a lump sum or would she be happier with cash flow? Find out what she needs and what her problems are, then figure out how to solve her problems. Maybe she's OK with a Lease Option as long as she can cash out in a reasonable time, so perhaps you can set it up with a refi in x years. Don't know, till you find out what she needs.
If it is free and clear look at an installment sale, give her full price with payments so you can net a positive cash flow, and the note survives her death so she can pass the note (cashflow, like an annuity) onto her heirs instead of a property with headaches.
Thanks for that great insight. I appreciate it. I hadn't thought about the installment sale factor. I'll look into that as well.
Ok, so an ARV of $1.9M and let's assume $75k for rehab for new paint, new kitchen, and likely some higher end upgrades to fixtures and landscaping to dial this in. Listed at $1.5M, you need to get this a lot lower than that for this to work. At a purchase of $1.2M and $25k assignment fee to you, rehab investor is in at $1.3M including rehab estimate (my guess as you provided very little info on that). Now you have a deal worth something.
If this is owned free and clear and you can arrange for seller to carry note at say $1M at 5% interest for 2 years, you have now added even more value and could sell that deal for more than $25k fee. The savings in interest and coming up with the $1M saves the buyer about $50k a year in interest and you could likely get $50k total for your fee.
Negotiating a lower purchase price with owner carried financing will be what yo need to do to add value and have a real deal.
That is a great scenario one that I will most certainly explore. I will be visiting the property in the morning and will be talking with the seller. I will let her tell me what she is in need of, I know from just doing a drive by the house is great shape from what I've seen. Needs the small touch ups since it was built in the late 90's but is in a very high end neighborhood. To clarify on the rehab I will know more on that tomorrow. My understanding on wholesaling was that I put a contract on it for say $1.2 and sell it to my investor for $1.3 and either roll my assignment fee into that price and do a simultaneous closing. How would I figure what my fee would be? Want to be sure to have this outlined as I negotiate with seller. Thanks again!
Originally posted by @Christopher Alexander:
My understanding on wholesaling was that I put a contract on it for say $1.2 and sell it to my investor for $1.3 and either roll my assignment fee into that price and do a simultaneous closing. How would I figure what my fee would be? Want to be sure to have this outlined as I negotiate with seller. Thanks again!
Wow, high end properties - you probably can make great spreads if you negogiate well. When you are a wholesaler, you get the property under contract and then you sell the contract to your buyer. I guess it does happen where you can literally sell your purchase and sale agreement to your buyer and then you're completely out of the deal and you walk with a check the day you sell it, but I wonder how many times that scenario actually happens. The most well-intended and capable end-buyer does not want to be out several grand in the event the house burns down before she or he can close on it themselves or there is some huge title cloud.
Whatever you want to make on the deal is your spread between what you get the seller to agree to and what you get the end buyer to accept. So if it's under the P and S contract with the seller for 1.2 million and you want a $100,000 fee - like in the above example - then your assignment contract to your investor should have $1.3 as the sales price. If you will accept a $25K fee, then the P and S is 1.2 million and the assignment is 1.225.
Thank you for your insight. That's where I was confused. I couldn't figure out where to get my fee. My investor does not shy from the price at all, he calls me 3 times a week asking for high price deals, I got extremely lucky this week with 2 calls for houses over a million dollars. Both are under priced but one house I didn't mention is situated between a house that was just completed and is valued at $5 mil on the river per the comps I had pulled from my good Realtor friend. The house I am looking at needs some work but they want to sell for 1 mil and again another free and clear. I guess having such a high fee made me nervous, and I didn't want to scare my end buyer even though me getting these houses on contract and leaving him with plenty of room for profit he shouldn't care either way. So it looks like I will have to most likely do a double close correct?
I have only done a few deals so I have not lived what I'm going to advise - just taking what I've learned here on BP. With the price points you are talking about, if you do not trust that your end buyer is going to follow through with the close, do a double close and use transactional funding. It will eat up some of your profit but since your margins are so much higher, ask yourself if it's worth knowing the deal will close. Yes, even though if the numbers work and there's plenty of meat on the bone, some will feel why should YOU be making so much, etc., etc.
I'm trying to figure out why a house that was just built for $5 million and is free and clear is being sold for $1 million. you are getting this house for 20 cents on the dollar???
Let me clarify, the house that is situated next to the home I am trying to get was just built and is valued at $5 mil. It was completed literally 3 weeks ago. There are about 5 houses on this road along the river and all worth over 2 million. The one I am going to negotiate is owned by an older couple who want to sell. The asking price is 1 million since it needs to be updated.
Oh and I'm not necessarily afraid he will bail on me at closing I was just making sure that double closing would be the route to go since the assignment fee is higher than normal deals. He is a deep pockets guy, so I doubt he would flinch as long as he is getting an outstanding deal on his end.
OK now I got it - thanks!
No thank you @Christina R. !!
No need to double close or use transactional funding, why add costs and take away from your spread when you don't have to. Making a $100k fee is certainly possible, but don't think it just magically appears or exists,I this earned through fantastic negotiations and adding a tremendous amount of value.
Since this is a direct sale and a standard one, simply have the contract assignable by having the name of the purchaser as "buyer ABC, and/or Assigns". Then you simply assign the contract to your buyer and at close of escrow, you get your fee, not before that.
Thanks @Will Barnard for that last bit of advice. I will update this post after I get things in order with contracts. Looks like I first need to get the house under contract at set price then assign my contract at the new price to my investor/rehabber and the difference is my fee at close of escrow. Fairly simple but I, like most others tend to over think things since its my first go on such a deal. Thank you again
This has been a really interesting thread. I really appreciate the input from everyone. Please keep us updated on your progress.
Good Evening everyone. I have formally submitted an offer on one of the two homes. The $1mill was just to hard to pass up, after seeing it and having my friend run some comps we found out the land itself is worth nearly $1mill. 180 foot dock and 2boat lifts with a breathtaking view. The street this house is on has all high end very luxurious homes. This one is the fixer upper and needs lots of updating to bring it to this era. The other property was nice as well and now I see why my Realtor friend urged me to get it. This property is close to 5.5 acres and has 4 lots that can be developed with single family homes. She told me she gets taxed on 5 parcels, and were purchased in the 80's. Apparently the owner was approached by a big developer who wanted to buy however she didn't want that deal since all he wanted was her lots. He offered 1.5 for that but she wants to sell the entire package. So that of course increased my options big time. I could put this on contract and market to developers. They would have one large house on the water with room to build 4 additional homes.
Any updates on these deals? Did they go through?
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