Custom Built Duplex by Flipper/Contractor

[George Smith]

For the last 4-5 months, Ive been searching for a duplex. The range in the towns Ive been looking at generally list from $115,000 to $140,000 for two 3 bedroom units. The median rent is $900. for the area and I'm looking to rent at $850+/-. Ive put in a few offers but ended up walking due to a counter that only an owner occupant buyer might bite at (4-5% return).

One of the real estate agents(and investor) that I use mentioned that she knows an investor (flipper) who was looking for work to get through the winter. She suggested that maybe he would be interested in purchasing a duplex(that she will find) that needs a rehab. And then after the rehab is complete, I would buy it from the flipper at a specified price that would get me the return I was looking for (10%). She also said that he would allow me to follow the process on the rehab from beginning to end which would enable me to run the rehab on the next property.

The first thing, which we have yet to discuss is how the deal is structured. Obviously, they need to know what purchase price will give me my return. But if the price is determined before hand and the flipper makes the initial purchase, how do i structure it to protect myself from getting something that I might not be approve of when its done? I'm not comfortable with signing a purchase agreement on a property prior to the rehab being completed.

The second thing is vetting. I met this real estate agent over a year ago through my local (fairly large) REI. This agent helps run the REI, has a very good reputation with many in the group, and always has multiple projects(wholesale & flips) going on. She stated this flipper has completed a very large amount of flips. I know that I need to vet this flipper through multiple other sources even though I trust this agent.

Any advice on structuring of the deal or vetting in a situation like this? Has anyone completed a similar deal?

Thanks

[Ron Averill]

@George Smith  Another way to look at this situation is that you could purchase a run-down property yourself and use this contractor to do the rehab based on your specifications. The contractor can help you determine what updates are needed and help you establish the rehab the budget. The end result is that you get a great duplex for buy-hold and the contractor gets steady work over the winter months.

I'm doing exactly this as we speak. I recently bought a duplex in a great neighborhood for $120k and it is now undergoing an $80k rehab. When the rehab is completed and I have renters on both sides, I plan to refinance the property to pull out most of my rehab costs or more (might have to wait a few more months for seasoning). Based on my projections, the property will then return at least 14% COC. Even better, my maintenance and capex costs should be very low for quite a few years after such a massive overhaul of the property.