Flipper/Rehabber · Redding, CA · Member since 2021 · 13 posts · 4 votes
I remember hearing about this strategy on either the Bigger Pockets Podcast or the Real Estate Rookie, but I can't find the episode for the life of me.
The guest on this episode had used a creative financing strategy by doing the following (I'm going to make up the numbers for this example, so they may not be totally accurate)
The seller wanted to sell his beat up house for 100k. It was off market
The house flipper paid for the renovation of this man's home while it was still in the seller's name. The whole renovation cost 50k.
They then sold this house for let's say 200k. They had an agreement for what would be done with this money after the sale. So the man selling his house got the 100k he initially asked for, and the flipper got everything that was left. He got his 50k back AND made another 50 on top of it.
Is there a name for this strategy? Is this a strategy that can be used for fixing up and purchasing a rental property?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
You’d want to find someone that’s done it successfully first. You have big risks for a little reward.
The contractor finds more problems you have to fix or disclose to buyers.
You’re paying the $10-$15k in closing costs. (On $200k) what if seller decides not to sell?
What if seller decides to sell for $150k? or less? He owns the property. you’re going to have to use licensed, bonded, workers with permits since you don’t own it and plan to sell it
If it’s worth $100k or more already, then you should just buy it, or someone else should have. what if it was only worth $80k?
you sell for $180k (doing the PERFECT upgrades that double your investment instead of the usual upgrades that only give you your money back. Minus $12k in closing costs. You make $18k. What if you make MAGICAL but not perfect upgrades and make 50% on your upgrades? So now you sell for $155k ($80k plus $75k) minus $10k in closing and you did all the work to lose $5k.
TLDR: get an appraisal and if you’re getting a 20% discount buy it. If you’re not then you’d starting at a loss covering closings costs instead of the seller covering them. And then hoping for perfection. As long as it’s just to test a business case and you’ll be financially ok if you don’t make any money, go for it. If you’re truly in CA make sure it’s legal and get a solid contract from someone who’s been doing it for years.
Flipper/Rehabber · Redding, CA · Member since 2021 · 13 posts · 4 votes
4y
@Bill Brandt
I'm scratching my noggin trying to find a way to make a deal in my town work.
The property is owned by a family member and needs a lot of work done to it. So the asking price is very low.
I have someone who is interested in a debt partnership to get this house sold to me to be used as a rental property.
She will be funding the project with a HELOC on her home. I would be making those payments toward her HELOC and also pay down the balance after the home is successfully rented out.
With this debt partnership, we would either have funds to pay the contractor, or the funds for the down payment on purchasing the house.
I trust every person involved to keep their ends of the agreement, and we will find a way to have the agreements professionally notarized as well. I'm trying to figure out a solid gameplan, and am wondering if something like this even has any hopes of working
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
But that’s the opposite of what you said in your original post. That one said fix it uo and sell it while tying to make a profit on your upgrades. Your new post says keep it as a rental. Those are two VERY different things. Your second post is much more doable, because you aren’t trying to make a profit on the upgrades, you’re trying to make it usable as a rental.
In your new scenario. Simply make sure it’s worth at least 20% more than you’re paying a;ready, in its current situation. Then simply do any cosmetic or safety updates required and start renting it out. Assuming those updates cost less than 10% of the true value before he updates you have a built in safety margin even if your updates don’t add much if any value.
Flipper/Rehabber · Redding, CA · Member since 2021 · 13 posts · 4 votes
4y
@Bill Brandt Awesome input! Thank you so much, I think this might be an option I can explore.
The original post though, I was describing the scenario from the BP episode for roughly what that investor was doing with this method. Then at the bottom asked if the method could be applied to purchasing the property as a rental, rather than selling it for a profit 😊