Would You Take This Deal?

Question

Purchase: $325KRehab: $85KARV: $500KHolding/closing: $40K

Total estimated cost: $450KPotential gross spread: $50K

Looks interesting but would you take it?

Before deciding, what would you verify first?

ARV? Rehab? Timeline? Contingency? Something else?

Kerry Noble Jr · Answer

no...margin is too thin on this one

Michael Eskenasy · Answer

I would not take this as a straight $325K purchase.

At her current numbers:

• Purchase: $325K

• Rehab: $85K

• Holding/closing: $40K

• Total basis: $450K

• ARV: $500K

• Gross spread: $50K

That $50K is not really profit. A small rehab miss or ARV haircut eats the deal. If ARV comes in at $475K and rehab becomes $100K, she is basically working for nothing.

I’d restructure the acquisition instead.

I’d go back to the seller with something closer to $280K–$285K, but make the terms better than a normal cash offer.

Something like:

Purchase price: $285K

Down payment: $25K

Seller carries: $260K

Interest: 3–5%

No monthly principal payments

Balloon: 9–12 months, paid when the property sells or refinances

She funds and controls the rehab.

Now:

$285K acquisition

• $85K rehab

• $40K carrying/closing

= **$410K total basis**

Against a $500K ARV, she has roughly $90K of room instead of $50K.

More importantly, she has some survivability if the assumptions move.

I’d also give the seller a way to recover some of the headline-price reduction without putting her downside back into the deal.

For example:

$285K guaranteed purchase price + $10K seller bonus if the eventual resale closes above $500K.

Now the seller can hear, “I’m not just beating you down on price. I’m taking the construction, execution, time and market risk. If the upside is actually there, I’ll share some of it with you.”

And if the seller is absolutely married to $325K, I’d stop negotiating price and change the structure entirely — seller financing, delayed payoff, option/novation/JV-type structure where legally appropriate — because I would not put $325K of acquisition basis underneath an $85K rehab for a projected $500K exit.

The number I’d protect is not the ARV.

It’s the maximum all-in basis.

For this deal, I’d want that somewhere around $400K–$410K, not $450K.

That’s the restructure I’d put in front of her.

Michael Eskenasy · Answer

@Jamie Parker ^^

Jamie Parker · Answer

@Siahna Im

91% of 500,000 us 455,000 (91% covers realtor fees and closing cost to sell)

you only make 5k after selling.

I would not want to do a deal with that much capital and only 5k in profit.

That said, the example mentioned by @Michael Eskenasy would be a novel Ideal. Ive never done it before. I should probably add that to the tool bag honestly. Get that ALL IN number down to build in more profit.

@Michael Eskenasy  Would this be considered a Novation? or some type of lease option? This is a really cool scenario, who do you come up with your valuations and down payments?

Would You Take This Deal?

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