All Forum Posts by: Matthew Harper

Sorry @Dan Perrott , I meant to tag you.

@Arlan Potter - I do think it has great potential for flip, though I guess I was tailoring my low bid on the premise that seller would benefit as well from the six years of interest.  Otherwise, I don't see him ready to jump on a $43k discount in price.  If he wants to raise the sale price, I would change the terms, or vice versa.

This is a very sought after area with high rent prices, but now that you mention it, it may be more beneficial in the long run to treat this as a flip and turn that profit into a few smaller properties that would most likely each have the same cash flow as this would after a refinance.  Just babbling.

Other thoughts welcomed!

The home is vacant and he lives across town in a million dollar house.  Not sure how long this has been vacant or the story behind it.  He has owned it since 1986, so he could have moved from it and rented it for years?  Trying to get more information from the agent or better yet, to talk with the seller.  May knock on some doors as well.  Not tonight though because I don't have a costume.

Not too scary, except that it is the first seller that has agreed to discuss seller financing and I have made ZERO deals in my life, and my numbers are quite possibly horribly wrong, and it is blasted HALLOWEEN!

Ok, skinny on the home:

Vacant 1940s craftsman two story 2/2 in an UBER family-saturated (literally two blocks from on of the nicest middle schools in town) neighborhood that pulls ft per square footage numbers down from the heavens.

In need of major renovation:  

-Kitchen (all but possibly cabinets to be replaced)

-Needs HVAC installed

-Lower level bathroom needs to be completely redone

-Majority of floors in remainder of house are good solid wood, just need refinishing

-Need to add a closet to an upstairs room to make it a 3/2

-Great deck outside has retreating and slitted boards from water standing on fallen leaves over the years

-Old one car garage most likely needs tear down

-Basic landscaping and fencing

This property is listed in the MLS and has 100 DOM, dropping from 190k to 172k. On the high end, these houses sell for 400k within these blocks. On the low end, low 200s, Given the style, amenities, and presumed upgrade to 3/2, I expect a worst case ARV of 250k.

My plan:

- Seller would sell the home at a purchase price of $130,000 with no money down. I would pay my closing costs (I am a licensed agent, so would expect 3% back from the sale as well)

- Seller would offer an interest only purchase money mortgage of $130,000 to myself at a fixed interest rate of 6% for a term of 6 years.

$130,000

x 0.06

=$7,800 interest annually

$7,800

=$46,800 interest over the term

$46,800

=$176,800 total compensation (higher than the asking price)

- This would allow me to have a low monthly interest payment of $640, which would free up my funds for the rehabilitation process, and it would allow Mr Lewis to obtain more than his listing price in the course of six years. In the case that I default on my payments as we set up in our agreement, he would have the opportunity to foreclose on me and re-obtain the property.

- I would also obtain a loan for rehab (ballparking 50k but have not walked through with a contractor), which has not even entered the picture yet.

- I expect the home to rent for 1400-1500

This is where I am at the moment and am trying to get a meeting with the seller and his agent.

Thoughts? Oh-no-don't-do-its?  Better options?

Thanks guys

Good idea!  So far it has all been talks.  I think a written offer may jolt him out of his indecision, or at least make the offer seem more concrete and an actual option for him to put it behind him while also making a great profit.

Will definitely continue to follow up and I will keep you updated.

Thanks again for the advice guys.

Thanks @Brian Gibbons and @Will Barnard 

The current home is a crookedly L-shaped one level built in the 50s around 2800 sq ft.    

We have continued to look into the market in the area and spoken with many appraisers and agents that are concerned about the location of the home as a fit for the style of construction we had planned.  What has been suggested is an empty nester rebuild between 2800-3200 sq ft that would sell up to 950k.

An initial worst case estimate of 450k for construction, 250k for the lot, 70k closing, 50k loan interest = 820k

We spoke with the owner for a couple hours yesterday, and it seems we are pretty far off on what he values the lot and home to be worth in its current state. Even if we were to purchase the lot outright and remove the seller from the picture by using a JV, I do not think at this point that we will obtain the lot for a price that leaves us enough room to comfortably make a profit.

At this point, he knows where we stand and may change his mind, but we are sitting on it.

Thanks @Brian Gibbons 

The home is free and clear, so would Sub2 come into play? I am not too familiar with joint Venture Agreement, though maybe just in terminology. I assume that is just the agreement of terms we set up regarding compensation (price of note, interest, share of profits)?

I am not sure of the repair costs to the home as it is, but from our initial assessment, it seems like a greater return to tear down and rebuild the lot to the standard of the homes surrounding it.  The current state of the home is not the desired style of the neighborhood.

We estimate that our new construction would sell around $1.25 million, with construction costs between $600k and $700k.  

The heirs sold a side lot next to this home for the low $200ks, which is well below market price for the area.  

Our goal is to obtain the lot for a similar price, offering 10% interest on the seller mortgage for a minimum of one year, with options to extend.  We would then need for the seller to subordinate his loan to our construction loan, and I am not sure how to explain how that will benefit the seller or still protect him, if it even does.  

The seller in this case is house poor.  He has no job but inherited a lot of property and is looking for a good out.  Here are some of the advantages I can think to suggest that our offer would include:

1. Home is sold at no commission
2. Home is sold "as is"
3. Never have to show the house
4. Never have to deal with buyers
5. Never have to deal with agents
6. Premium interest on the loan
7. Flexible moving terms
8. Can take all fixtures, and everything else
9. Cost plus 12 months 10% interest at a minimum to count on

Hi all,

I have been speaking with the inheritor of a home in a high end neighborhood in Birmingham, Alabama (more specifically, Mountain Brook).  The home is in a prime location, but is beyond the scope of repair for what would be desired in the area.  It makes the most sense to tear down and rebuild.

I am new to investing, so my resources are fairly thin.  I have been working with a partner for this deal who has built homes in the area before.  Our initial idea was to suggest a purchase money mortgage in which we use seller financing as a down payment on a construction loan.  The seller is open and excited about the ideas we have discussed but is a bit worried about being subordinate to the construction loan.

Since I have not done this before, what assurances can be made to the seller and what collateral would he have in this situation that would make him feel more at ease?

Are there other options that I may not be aware of that would facilitate a large, new construction project in a case like this?

Thanks,

Thanks all for the well wishes!

@Jon Huber  I've already begun binge pocketing and am through show 21 on the podcast.  Great stuff.  Wish I had time to follow up on every single show note as well!

@J Benoit  You may eventually have wish you hadn't offered...

@Raven Parmer Our plan is to locate lots with willing sellers prior to them being placed on the market, because, as you said, Mountain Brook is a very high end market and the lots are premium when listed.  I have a few methods that I am working on to locate these opportunities that differ from a normal marketing plan for motivated sellers since this area and the lots and homes that come with it are at such a premium.  We do plan to follow the projects through to build the spec houses and sell them.  I am ALWAYS open to suggestions of creditable, trustworthy and talented tradesmen, so please don't hesitate to shoot me a recommendation.  I would really appreciate it.

Hi all,

I am a newbie from Birmingham, AL and just wanted to introduce myself.  Here goes:

I graduated from the University of Alabama with a Master's in Geography, focusing on Geographic Information Systems (GIS). For the past four years, I have worked in Alabama Power Company's (APC) Corporate Real Estate department as a GIS Project Specialist in Land Management and most recently as a Real Estate Specialist in Shoreline Management, focusing on APC's ownership and FERC license compliance along its eleven reservoirs throughout the state, accounting for more than 3,400 miles of managed shoreline.

Real estate has always been at the heart of what drives me both professionally and personally. I thrive on the challenge to solve problems and discover creative solutions. It is this desire that has led me to delve into the world of real estate investing.

I currently have 7 years of experience in GIS and five years working in Alabama Power Company's Corporate Real Estate department. I have had a real estate license for the past six months, closing a few deals along the way, but focusing mainly on learning the investment side of the business.

It is my goal to locate properties for new construction in Mountain Brook, AL, find motivated sellers throughout Birmingham, AL, to find creative solutions for both parties to benefit. Long term, I am seeking smaller and eventually larger multifamily projects in which to invest and hold.  I am also interested in rent to own situations in lieu of straight rentals, though I am still wrapping my head around this concept.

From the little time I have spent on this site, I have gained more knowledge per minute than I could possibly find anywhere else.  I'm a huge proponent of the Pareto Principle (80/20 rule) and this site definitely fits the 20!

I look forward to continuing to learn from you all and hope to one day provide insight of my own from which you can benefit.

Thanks

Hi All,

I'm a brand spanking new BiggerPocketer from Birmingham, AL (haven't even introduced myself yet!).  I'm just about as new to investing as I am the site.

I have just begun working with a seasoned partner in the area and we are in discussions with a property owner that inherited a run down home in a very lucrative rebuild area.

The owner is trying to avoid capital gains or estate taxes, and we have discussed a possible 1031 exchange with him, but he is nowhere near knowing what he would want in exchange, so we are avoiding that plan for now.

What we want to do is submit an offer with the intent of it becoming a purchase money mortgage, giving the seller 10-15% on his loan of perhaps 12-14 months for completion, so that we can use the mortgage to obtain a new construction loan on the lot.

What issues may arise from this type of situation?  And as I prepare an offer package, how can I show statistically how this will benefit him  in the long run over other options such as renovation or selling as is and listing?

Thanks all,