Random...Either a great idea or a BUST! What do you think?

Question

First off, I am sure I am not the first to think about this and it may be being done everyday.

I have thought about this many times and would like you to chime in on whether you feel it would work or be a complete waste of time.

Expired Listings: I have access to these as an agent.

My thought was to knock on these property owners doors or send them a letter with the following....I will purchase their property Cash and pay to fix it up to get the highest market value.  Then once the property was rehabbed and sold compensate them in some way.  I don't know if a JV 50-50 split would work well or if their is a better option as in a percentage of the sales price.

All comments would be helpful, thanks!

William Hochstedler · Answer

@Jamie Wooley

In theory, this is a good idea.  I've done joint ventures with sellers on physically distressed properties as an alternative to straight seller finance.  For me, it only works when the seller is convinced that they're property is worth a fortune after it's fixed up.

Let's say the seller wants $100K for the property that will come in at $170K after repairs of $25K.  If the seller partners with me (sells me the property for $75K, say, and splits the upside), they could net $110-120K.  In real life. when I present the partnership option, they go for the straight seller financing at $100K.  At the end of the day, lending me $100K sounds like a lot better option than waiting to see if my rehab really gets the value to what they think it should be.

The problem with your idea, however, is the expired listing component.  By definition, the market has already said "no" to what they want for the house.  Getting rid of the commissions is rarely a deep enough discount to make these properties make sense.  If there's enough equity for a discount and the property needs work, I've been most successful purchasing these during the listing period

Because these properties typically have no equity, or have a very stubborn seller, @Brian Gibbons  has better strategies for expired listings that include lease/option sandwiches.  More possibilities open up if you are licensed agent.

Brian Gibbons · Answer

@Jason Krick

@Jamie Wooley

I joint venture with the seller on the light rehab, like a new kitchen but everything else is fine

Example $200,000 ARV, , free and clear house , needs $20,000 for new kitchen and $20,000 to resell with commissions and closing costs

If you did a wholesale offer with the house, you'd be 70% of ARV minus rehab costs or $120,000

JV works like this:

you add up the rehab cost plus the resale calls plus a JV fee of like $10,000 in this example adds up to $50,000

Net to seller on JV is $150,000

Net to seller on wholesaling deal is $120,000

Warning: must have a cooperative seller, must be able to get a JV agreement that allows you to buy on seller financing, giving a note for Equity and no payments for four months. Use private lender money for rehab, no payments to private lender for four months, must be able to list house at 97% of good comps for fast re sale

Jason Krick · Answer

@Jamie Wooley

I could be wrong, but I think @Brian Gibbons works/advocates a strategy similar to what you are describing.  I don't think he purchases the property, but lays out to the seller what the profit could be fixed up, charges them a fee, and they partner on the rehab.  I certainly don't want to speak for him, but maybe he will chime in here.

Any insight Brian?

Michaela G. · Answer

That's what Joe Kaiser in Washington did. Read www.pushedtoshove.com . He never had one complaint by the owners, then the AG of Washington made it his mission to shut down this investor (or scammer in his mind, because he didn't understand ) and suddenly all of these former owners, who had been really happy for having still received 50% profit, came out of the woodworks, stating how he stole their houses.

John Thedford · Answer

Why not just buy it, have them move, rehab, then resell. I just sent out letters today (they will be postmarked tomorrow) on some expired listings. I go through them, pick the ones I would want to own as rentals, and mail to those. If I get a response, I offer them two options: I will buy it for "x" or list it for "y". Either way is a win.

Alberto Camacho · Answer

This "JV" is a strategy that I use sparingly because of the risk. The only way I take this on is when I can control of the property, rehab and selling decisions. Most sellers get scared off when this comes up. Problem is if you don't control they may kill a sale because the offer doesn't meet their valuation. Another situation is when a house won't sell, we lower the price quickly. A seller may not agree with this approach. Most owners don't worry much about holding costs. For us it could be a huge deal. Holding could kill the profit.

My JV normally has my profit first and the rest is split 70/30 in their favor.

I know this isn't always the case but I suspect if it's not selling in this market it's just priced wrong. The expectations of those sellers may not be in line with what we feel a property is actually worth. Which adds another point of contention. Not trying to discourage you here just be smart and step carefully. Home owners typically are not seasoned investors.

Jamie Wooley · Answer

@Michael C Gregory@Mark Holencik

Okay, so you have convinced me not a good idea. lol

Very good points there, thank you!

Michael C Gregory · Answer

Offer to buy the home. Offer less than what they were asking. Explain that their asking price was way too high. Offer them .65% of ARV. Then sell the house at full ARV using owner financing: 10% down, 10% interest to someone who cannot qualify on their own with owner financing. You don't need the owners involved.

Mark Holencik · Answer

You will win them because they trust you. If they did not sell till you get to them making them a part of team will confuse the hell of most of them. You are talking to a home owner not a real estate investor. Talk to them find out what they need and see how you can make it work.

You do not need a partner does not understand what is involved. They will only see what you paid and what you sold it for. They will not put any value on your time. Most business people do not put a value on their time. A home owner certianly will not.

Mark Holencik · Answer

Why would you give them any part of the profit? You are buying the house and fixing it. What are they doing to earn part of the profit?

Random...Either a great idea or a BUST! What do you think?

Most Popular Reply