Flip a "retail" property?

Question

In response to a postcard mailing to absentee owners, today I was contact by the owner of a 3/2/2.  I went to view the house and was blown away by how absolutely perfect it was.  The owner took meticulous take of the property and, therefore, there are absolutely no repairs  needed.
          
          Simply stated:
          - Owner has asked for $120K cash
          - Owns property free and clear
          - Comps for similarly immaculate home show LP $115K SP $103K
          
          My intent is to flip the property, but with this kind of property and a non-distressed seller, how can I make money on this and pass on to a cash buyer? 
          
          The owner has said he will give me a crack at selling the property  first. I'd hate to have to turn it over to a realtor for a retail sale!
          
          Thoughts, anyone?

Jerry Puckett · Answer

Stephanie,
Generally when I encounter a seller wanting any where near retail, I encourage them to list their property. Go ahead, sign that contract, maybe you'll get a quick offer I say. What is this person's motivation to sell? What reason would he have to discount his property?

Since he owns free and clear, and it's not his residence, have you talked to him about seller financing? He could have his price, if you get your terms.

Trying to motivate a non motivated seller is a waste of your time. :crazed:  Not every call is a lead, and not every lead is a deal. If he's not willing to seller finance, I don't know that there's much you can do with this one. :roll:

Jerry Puckett · Answer

We mostly buy and hold, so our seller financed properties are either rentals, or have tenant buyers. Our tenants pay our seller down until either we are ready to refi into a conventional loan, or the tenant buyer is. So our deals are structured like this: Mr Seller, I'll give you 2000 down and 250 a month as a hassle free income stream for 5 years and then a balloon payment of x dollars at the end of that term. Thing is there are costs you'll have to come out pocket for, but structured right you'll be getting an interest free loan while the house appreciates and cash flows.We typically get a private money loan to cover costs and pay ourselves.

Option 2 is to get that house under contract with the terms you want and then find a buyer to assign it to who can make at least a 10% down payment from which you will take your fee, the down you agreed to seller and the closing costs.

I'm sure there are options 3 and 4; there are a lot more creative people than me on this forum. Negotiate and get the terms you want, then get it under contract.   
           :kewl:

Account Closed · Answer

Personally I would be SUPER conservative when considering adding new property to my portfolio if I was in the USA right now.

Appreciation is the LAST thing you will be experiencing in the next 1-3 years for sure, real estate values are set to drop off another cliff once the banks release their shadow inventory onto the markets and another round of homeowners start defaulting.

I wouldn't pay anywhere close to retail on any property with the current economic conditions. Too risky.

That's just my opinion though and you probably know more about your local market than I do. Always be careful.

Bryan Hancock · Answer

Well that is certainly a great note that you negotiated.  I wouldn't expect for most sellers to go for that, but it would certainly make a deal profitable IF you could get your wrap sale buyer to mirror terms on the balloon AND they actually perform.

Jerry Puckett · Answer

Yes, property is free and clear. 1700 sq ft, 4 bedroom 2.5 bath in a decent part of Farmer's Branch. The only thing about it that has given me any pause is the fact that there are quite a few homes for sale in the area. I'm thinking that there are quite a few folks around here who have lost their jobs.

Bryan Hancock · Answer

Was this property free and clear?

Jerry Puckett · Answer

Oh, one other thing. The seller lives out of state, and his sister who was managing this property for him has moved away. He no longer desires to be a landlord.

Bryan Hancock · Answer

Can you tell us more about that deal Edward?  It may be instructional for us to poke potential holes in the deal.

I have done a lot of these wrap sale deals and know how the portfolio really works in future years.  I'm not saying your deal was bad, but it would be helpful to see how it was put together.

For this particular deal...the one cited in this post...the risk will be borne by the seller and the OP would stand to make a fee by assigning the contract.

BTW...There are SAFE Act implications to this strategy now so you need to engage a RMLO if you are planning on doing this...unless you are licensed.

Bryan Hancock · Answer

It really isn't that hard, but you need an attorney to draw up some docs for you.  A WHOF is really just substituting the seller for you so that you aren't stomaching the downside risk in the event the buyer defaults.  You set everything up like you would with a subject-to purchase and wrap sale, but you just assign the contract to the buyer at closing in trade for $.  Depending on the terms you agree to with the seller this may or may not be the right option.

The initial contract can be structured with a standard TREC contract with an option.

If you PM me I can put you in touch with our attorney in Austin that does these.  There are also some good attorneys in DFW that some of the local RE folks here in Austin use.

Jerry Puckett · Answer

Maybe it's the exception and not the rule, but I never would have known if I hadn.t taken a little time to sound him out. Then again, my company is pretty small potatoes, and while my time can be wasted, it's not nearly as expensive as some.
           :beer: Cheers!

Flip a "retail" property?

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