seller has to close on home before selling...advice?

[Don Mead]

Hey there

So I have a lead who purchased a HUD home with intentions of reselling it using a double close. Turns out he cannot find anyone to buy it and only has about a week until the contract expires. My question is how can I profit from this deal? Its 90k under fmv and is pretty tempting. No major issues with home as well, relatively new home. advice?

[Derek W.]

Since I'm working with limited info, I'm just throwing out a possible answer. If I'm presented a house for $390k and can sell after repairing it for $510k it is very possible there is not enough spread for a profit. What we weren't told is how much of a rehab does it need to get $510k? If it's totally dated and needs a major face lift, in that price range with high end finishes expected in order to attract end buyer it may require a $50k rehab. Then there is a cost of money.  If I borrow hard money at 12% and pay 3 points for 4 months that's $27,300 paid to the lender. Then there's agent commissions and closing costs of approx $40,000. So $510,000 minus purchase price minus rehab and closing equals NOTHING. There isn't a profit at the end of this example. It's possible it's too tight for experienced investors which is why they are all passing. 

Take out any of my expenses,( assume you have cash and don't spend $27,000 on hard money)  and that still leaves a pretty small profit for the risk.

I can understand an end buyer being wary of a double close. It certainly sounds like a sophisticated scam to those not inside of real estate.