Help, post fire and can't even give this Chicago deal away

[Anita Fofie]

Hello all,

As a wholesaler, what are your options when you have a dilapidated property under contract needing a full gut rehab that might exceed the ARV? Rehab is about $100K.

I have a small brick multi family building on Chicago's south side. Recently sold comps say one thing regarding ARV (~$130-150K), but it's a C/C- neighborhood so my buyers are having a tough time getting the funding for the rehab based on lenders preception of the appraisal value. Prior to a fire the four units were cashflowing really well. So not sure ARV is really the best metric...Cap rate even with the full rehab and acquisition costs would be in the double digits. Even cash on cash return to acquire, rehab, and costs to hold the property would be over 15% in the first year...

I've negotiated the contract down with the seller by half and would of course pass that on to buyer. I get that this isn't a deal for a fix and flip, but should be a decent fix and hold project. 

Still can't give this one away.

What am I missing?

I can give more specific numbers of need be but thought I'd just start with the general scenario to figure out what to do. 

Thanks. 

[David Dey]

@Anita Fofie I can't guarantee you that these tips will get your property sold, but at least it will give you more options.

1) I know you have negotiated the price of the property down, but have you negotiated any terms?

As you said, you can't practically give it away.  Well neither can your seller right now.  So you might as well team up.  Let him know you are doing everything you can to move the property, and what might be the next step is for him to owner finance the place.  Work the best terms you can, like no payments or interest till the place is fixed so you buyer doesn't get stuck with payments till finished.  It won't be any skin off his nose at the moment, cause he isn't getting paid right now anyway.  Who knows, depending on his/her financial standings, he might even be able to finance some repairs as well?  You might have to wait on your fee for a moment but it might be worth it to be able to "give it away."

2)  have you asked what happened to the insurance proceeds?  He probably has them and doesn't want to use them, but it may come down to needing to do some at least, "whitewashing" of the property, or maybe you have to spring for a little cleanup if you believe that much in the property.  

I know the place is beat up from the fire.  I know that investors and lenders are supposed to be a unique breed that can look beyond the muck and mire and see the gem that a deal is supposed to be, but the truth is that sometimes we are as "blinded" by the mess 💩 and miss the gem.  Sometimes a good cleanup, a pressure wash, or even a coat of paint could be the difference between a sale or not.  (Gasp, sometimes even we wholesalers have to do something to earn our keep. 😜)

3)  Are there any city programs out there available for assisting the buyer in fixing up the place.  Your knowledge in helping them solve this problem could be crucial in getting the place sold.  (The more value you add to the deal, the more deal it is)

4) Spread your net wider.  This is a multi unit property, and this is Chicago.  You may have better luck on a national scale.  Have you considered listing it on Loopnet.com?

5)  On the other hand, my mentor always told me, "you can market all over the world but your buyer is just a stone's throw away."  Are there any other multi-families in the area?  Were any of them purchased recently?  You may have your buyer right there?  Check with your local permitting department.  They can tell you who has done major renovations in the area recently.  (It's public record)  your buyer may not be on your mailing list, he may be next door.

Well like I said, no guarantees that these tips will work but at least maybe they wil give you some additional ideas.