I need advice on negotiating a flip purchase

[John Franczyk]

I have a track on a house that is a good flip candidate - 2 Br, I Ba, 70+ year old structure with a strong foundation and good systems, sitting on 1/3 acre at the end of a cul de sac. The seller is 70+ years old. He's lived there all of his life.

 The 6 or 7 neighboring properties have all been upgraded to 3-4 BR, 2-3 Ba. The strategy here would be to expand the house with 2 more BR, a great room, and at least one more bath. Neighboring properties are selling in the $350K range. The seller's realtor friend tells him to ask $250K. My best price right now is $130K-$150K, with an expectation of putting $150K into it. I can make the business case for a rehab deal and can get the deal done before year-end. If the seller listens to the realtor, he will go through a slow death of reducing prices until he sells it next year some time.  

The seller needs $50K to get out from under some debt. The rest would be gravy, and I don't believe he needs a big payment to cover retirement living expenses.

How do I approach the negotiation? 

[Andy Sabisch]

First there is not a lot pf meat on the bone to cover unexpected costs, holding costs due to the dynamic market and the availability of trades.  If you have a crew of committed resources to complete in essence a new build in a short window that is one thing but of not, where the market is now may not be where it is when you are ready to list it.

The other thing is that when you have someone that thinks they know the market whispering in the sellers ear, you will likely have a challenge on your hands especially when you are offering almost half of what the seller is being told it is worth (even if it is not).  We just went through that where we had a house under contract and then the seller talked to a friend that said the property was worth considerably more and talked the seller into backing out two days before closing.  It cost him $5,000 for us to release him from the contract (could have been worse but we opted to release him) so we found that even with a signed contract nothing is firm until keys change hands. 

It sounds like your seller is getting advice that might not be in his best interest so if you are sold on the property and the work and the price, develop a proposal that shows immediate cash now in a changing market rather than hoping for a sale and having to hold and maintain it.

I would be very conservative with the ARV on the property as with more interest rates looming, you will see values drop to adjust for that . . .we are seeing that in multiple markets we work in which 6 months ago would never have happened.