Possibly selling my 1st Property. How to "set the hook"?

Question

The other day I had a call from a local wholesaler who was interested in buying my property. After a tour and some negotiating, he offered 140K, which would payoff all my debt-load with a little left over. I'd be breaking even but able to redeploy the funds to purchase another property or two with a mortgage, rather than all-cash purchase like this one was.

We have maintained open communication; however, he is awaiting feedback from his finance guy. How do I get some degree of commitment so I don't risk loosing the deal or risk him getting cold-feet? Earnest money? We don't have a contract yet. What should I do to keep an offer from slipping away?

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Justin Hammerle · Answer

@Joan Saylor - this may be pretty obvious but why not consider listing with an agent if you really want to sell?  MLS will give the property the greatest exposure and probability of highest sale price.

Joan Saylor · Answer

It was listed as a 1948, 3/1, 1331 sf, single family residence. Bought it as a Bank Owned Property which was vacant at least 4 years. Paid in full using  cash from a HELOC. I knew from the beginning it needed extensive work: roof, foundation, electrical, and plumbing. The value I saw was that the square footage was under-reported since the previous owner had enclosed the breezeway and attached garage, turning it into a 1/1 apartment and the large detached 2 car garage also has an efficiency built in the rear portion. If listed as a sfh, it is a 4/2 at 1996 sf, with an additional 350 sf ADU.

I cannot get it rezoned as a multi-family; however, I have got written approval from the local public housing authority to rent it out through Sec-8 as a triplex. It is a rough neighborhood but there has been a lot of new businesses coming in and a lot of these older homes are being invested in, renovated, flipped, or rented.

With the constant rate hikes, sky-rocketing cost of materials, and the severely underestimating the cost to re-wire, my budget is shot! I am finishing out the interior myself (DIY): Insulation, Drywall, paint, cabinetry, and tub, buying material bit-by-bit every payday to get the main unit habitable, rent it out, then refinance. Even at today's crazy interest rates, a 30 yr fixed mortgage will get me to break even with the tenant basically covering my debt burden. I can then finish off the other 2 units, sparingly redeploying the HELOC funds.

Various private investors are willing to finance me; however, I just need to finish out the main unit.

The random offer of $140K would pay off all my debt, allowing me to immediately redeploy the funds for down payment on turn-key units.

John Clark · Answer

If he doesn't have financing set up, he won't commit to a deal. There's nothing you can do to get him to do so.

Jaron Walling · Answer

@Joan Saylor "I am eyeing that are freshly rehabbed that will cashflow right out of the gate." - Okay, share the numbers you calculated on one of these properties... lets see if it has legs.

I understand your situation. I've been in the same camp for 5 years. Basically a lack of capital, higher and higher prices, but a growing network of contactors and investor friends. I mentioned it already but time is your biggest resource. If a rehab budget is $25k, you're DIY a lot, but it costs you hours and hours, what is you're personal time worth? The answer... a lot more than your charging! I'm unsure if you plan to chase distressed deals but leveraging other people (on key projects) is so important.

Jaron Walling · Answer

@Joan Saylor That's a lot of information to unpack and I agree with you about the remodel challenges. Everyone makes mistakes budgeting for rehabs so don't beat your self up about it. However, your last statement "redeploy the funds for down payment on turn-key units" makes no sense. How or why go from a distressed tri-plex remodel into a turn-key property? Turn is dead right now (for the most part). The numbers are paper thin on turn-key rentals. Talk to investors that remodel distressed deals! If other investors struggle to find low distressed opportunities what makes you think you can buy them remodeled at a price that cash-flows?

The distressed property you own has greater upside than buying another property. I'd get a handyman in there to help you swing some hammers. Time is against you. That's just my 2 cents.

Jaron Walling · Answer

@Joan Saylor Condition of the property? Good or bad location? What's the motivation to work with a wholesaler?

Possibly selling my 1st Property. How to "set the hook"?

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