How To Maximize Profits From Every Lead

Question

Often, and recently I come across deals that have money to be made, but that I don't know exactly what to do with them. I am certain many of us feel the same way.  Maybe one of you out there can shed some light on what I don't know. I recently came across a seller in the following scenario:

DETAILS

• Great location (635% population growth)
• ARV of 575k (recently appraised at 580k according to seller)
• 5k-10k in repairs (just cosmetic)
• He wants to sell soon, does not want to list, wants to go with the cash buyer and is willing to take a small hit just to avoid the whole selling process. 
• Investor Return: 40-50k

DILEMA

• It doesn't fit my criteria for a flip as far as price range, risk and reward
• Doesn't fit most of my buyers criteria from a wholesale standpoint
• He isn't motivated enough for the 70-80% less repairs formula to work here
• But there is still a possible 50k sitting on the table here.

I don't know what I don't know. Is there anything that can be done here to get the 40-50k out of this deal?

Cash Lawless · Answer

Thanks for all of the input @David Faulkner @Erick Burgos @robin

@Robin Wilk Great stuff to consider. Thanks!

Brian Gibbons · Answer

What is the existing financing?

Do the cosmetic repairs stop a traditional sale? Is it really unattractive?

If it is free and clear of liens, offer a JV w seller,

Figure resale costs w agent and closing costs

Figure accurate rehab

Figure 5 percent JV fee

Offer profit in a 1st mortgage note, no payments for 4 months

Buy on seller financing, get rehab money from private lender

Get on title, then fix and relist

Pay off liens

@Cash Lawless

Robin Wilk · Answer

You could do a sandwich lease option where you are basically in the middle between the seller and tenant/buyer. Ask him if he's willing to enter into a lease option agreement whereby he will get his asking price for the home and then tell him that you will work with him to find a tenant that he can then screen to see if they would be a good fit. Once you do that you can either do a sandwich lease option or just a wholsale lease option.

A sandwich lease option is where you have 2 contracts one with the seller and one with the buyer. I would see if the seller will agree to adding you as a "tenant in common" on the deed of the property basically making you co-owners. The contract with the seller will cover his price and terms. The contract with the buyer will cover the rent amount and anything else the buyer would be responsible for such as yard work etc. You have to be careful with this because of Dodd-Frank it cannot look like a disguised sale. This puts you in the middle thus the term "sandwich lease".

With a wholesale lease option you only have one contract with the buyer once you've found one that the seller approves of and then you simply assign your part of the option to the seller so you're out of the deal. This works best with seller financing where the seller of the property basically becomes the bank. I'm not entirely sure if a wholsale lease option is entirely legal because you are assigning your option to the seller so if I were you I'd see about doing a sandwich lease option. Hope this helps you out.

David Faulkner · Answer

If you are a licensed real estate agent, offer to sell it as a pocket listing, not on the open market/mls. Try to find him a cash buyer (not necessarily an investor) that is looking for something more turnkey than an average flip and willing to pay closer to retail to get it ... the value that you bring to the transaction is you find, screen, and qualify potential buyers before parading every lookie-lou through this guys property. Not sure how fast this will be, though ... depends on the breadth and depth of your network. If he REALLY needs a fast sale, then he will likely need a steeper discount, and I'd advise him as such. I'd also show him the option of having you list it on the open market/MLS, what the pros/cons are, how long it wound take, and what price it may fetch. Talking through multiple options with him and letting him make an informed decision that you could help him execute either way is best for him and for you IMO. If you are not a licensed real estate agent, then become one for this reason to add more strategies to your multi-strategy real estate investment toolbelt.

Cash Lawless · Answer

Hey Robin, Thanks for your input here. Would you mind elaborating on how you would profit from the lease option method? I am curious to hear what you're thinking.

Erick Burgos · Answer

@Cash Lawless while the absolute number of $40k-$50k seems high the amount of money to generate that return is too high.  Keep in mind that trading an asset like RE costs like 6%-8% in taxes, closing costs, title insurance not to mention agent fees plus those pesky holding costs. Many many and I repeat many times when sellers say it is all cosmetic but a pro inspection will reveal problems. Margins are tight now a days but a good REI will not chase .

Robin Wilk · Answer

What about doing a lease option would that be possible?