ok so my friend who is working with agents, actually got a pretty good lead from one of them. it seems.
a bank is doing a estate sale, not advertised on MLS, close on the 27th. the house is selling at 650k, and approximate fix up cost is 150k (this number will be confirmed this week) and the value of the fully repaired house is estimated to be 1.2 million. The houses on sale around is 1.5 million or so.
we got a joined venture partner who is willing to finance 100% asking price, and fix up cost, even holding cost. (wow amazing, i couldn’t believe he got such a good contact) IF the appraisers number come out to confirm everything is correct.
even though i am extremely hesitant about such big numbers at first purchase, the numbers do seem good. so assume everything is true, we gotta line up everything in 10 days! strange that the bank is accepting offer and closing the deal on the same date.
so within the 10 days, we plan to get 2 contractors estimate, get lender’s appraisal, and approval for loan! seems overwhelming. does this seem realistic to any of you more experienced investors? am i missing something?
I’m not following the $1.2M vs. $1.5M. I think that at $1.2 there’s not much profit. You may think, wow $300k spread. Holding costs are sure to be high. 6% to sell. Look at the numbers very closely.
Are you using the right terms? An estate sale is when the previous owner has died. You usually have to go to the courts and get a license to sell depending on the situation.
Now if the bank is doing the sale, isn’t it a short sale?
How many comps do you have? Is 1.5 million the asking or sale price? The math sounds like it’s 650k for the property, 150k to fix so about 800k. Then holding costs and a few other things to subtract from 1.2 million gives you something less than 400k.
I’ve also seen 1.2 million dollar homes eventually sell for 1 million. Still it’s not too bad a deal if all the numbers are correct and you’re not falling for some kind of scam. I’m just curious as to what you’re supposed to bring to the table.
lol maybe estate sell is not the right term. basically the owner has died, but in his will he assigned the bank to sell the property. so that his kids can split the profit. I am not sure of the details, but its not a scam, everything checks out. the strange part is that from the day it is up for sale, which was 2 days ago, until the closing day, which is 10 days from now, total 12 days. pretty tight for a transaction.
keep in mind, since we are using a joint venture partner, there is no interest payment! we are splitting 50/50 profit. now that may be the most expensive way of doing it, but we dont have options. the time is tight, we need someone who knows this stuff, to lend out noobs like us approximately 800k or higher. if we are not paying interest or monthly mortgage payment, the holding cost cant be that high. 1000 per month? that sounds reasonable?
my friend also claims that he can make all the repairs with contractors under a month. wow, 150k repair in a month, i dont know how is that going to happen, but we will know once we get the estimate from those contractors.
Henry asked a critical question. Your friend found the property. Someone else is providing the financing. What is your role? Whose name will be on the deed?
You said that there is no interest because it’s a joint venture. However, I’d bet that’s not right. No-one is going to loan you nearly a million dollars without expecting to be paid for that money. Is the interest deferred? What happens if the market turns down or the rehab is much more costly than anticipated and you are forced to sell at a loss? What happens if the profit is less than the appropriate interest on the money? Is the partner taking all the risk and expecting nothing in return (but splitting the profit)?
Often, higher priced homes are the most difficult to sell in a downturn. Who will provide the carrying costs while you are waiting to sell it? Is the interest on the money taken up front before any profits are split?
Finally, this deal is being rushed. Ten days? Why? I’d be sure to do an extremely thorough due diligence.
Good Luck,
Mike