House worth $1 million seller wants $300,000 to LEAVE

Good Morning, Everyone I want to make this quick. I have a seller that is a million dollar property that wants $300,000 out the home to move and allow me to assume her loan. She owes $390 on the loan, which equals to $690,000 leaving a chunk of equity in the home. How should I constuct this deal? I have been thinking and thinking, and even had a dream about the property last night, you know that’s bad! :banghead :help :banghead

First question; is the home really worth $1mil? Why would this seller give you $300k in equity? Second question; is her loan assumable or will you simply be taking over payments? If the house is truly worth $1mil and you can sell it (questionable?) in short order just give the seller her walking money and flip the house. If you don’t have $300k cash perhaps the seller will accept a promissory note that gets paid off when you sell the property.

Yes the home is worth $996,000.00 the appraisal was done 2 weeks ago. She wants to get out of the house because her parents lived there and they both passed and she wants to move on in her own home. The loan is assumable. I don’t think I will be able to sell it for a the “996” but close to it. The homes in that area are selling for $850-$902.

Appraisals are rarely worth the paper they are written upon (imo). It was likely prepared for the seller and as you state similar homes are selling for $850-$900k. This give you a better estimate of what spread you have to work with. Know your market well and do your numbers assuming the worst and you will hopefully not be disappointed.

So assume you buy for $690k and sell for $850k. Back out your holding costs, transaction costs, clean-up and repairs on the house etc. and you will see that instead of a quick $300k profit you’re realistically looking at something considerably less. But certainly worth investigating.

What state is the house in?

The most important thing you need in a deal is equity. The seller only owes $390,000 so you have equity. Probably the second most important thing in a deal is motivation. Which you also have. What everyone here is concerned about is your exit stategy. In the two states I invest in nothing is selling fast. Even good deals stay on the market for months. So when you go to flip this property you will need to be prepared to hold the house for 12 months. Even if you are selling it for a good deal, I would still plan on 12 months of carring costs for a property this expensive.

Here is an option to lower your risks:
Offer $690,000 or whatever you decide with 100% seller financing or close to it. Tell the seller you will refinance in 12 months and pay her off in full. Then throw it on the market for $890,000 ($100,000 less the appraisal). If it doesn’t sell, then just give it back to the seller.

I’m worried mostly about the market dropping off over the course of the acquisition and repairs. It might be worth $850k today, $840k by the time you close, $800k by the time you get done doing repairs, and $770k by the time it sells 6, 8, 10 months later. The holding costs are going to eat that equity up like a fat kid at the all you can eat buffet.

Hey Everyone, and thanks for all the support…here is the situation…I will try to answer everyone question from the replys…the home is Washington, DC and all repairs have been made to the house…the house has been wonderfully reconstructed…why would a person go threw all that trouble to only leave it??? I DON’T KNOW THAT ANSWER…however this is what the seller has done to the home…the seller has made one house into 2 units…divided by a wall it has hardwood floors, Stainless Steel appliances, 2 full baths and each side has (2) bedrooms…one side has the basement and the other side has the attic which is now being used as a office… it has the works!!! ON TOP OF THAT the property has a second house that sits in the back of it, that is not repaired but it is hidden by the property in the front…and that house has 2 bed rooms, kitchen, living room, upstairs No basement on that property though. Seller had a renter in one side renting for $1600 but they are leaving 11/1. With all that said anymore suggestions???

This is significant as I and most others thought we were discussing a single family dwelling. This is a duplex with an additional building on site and thus a rental/investment property. Have the units received a certificate of occupancy? Is this property comparable to the $850k comps you mentioned earlier or are those single family houses?

Those other homes are single family dwellings and don’t have another house sitting in back of the first. They still sold for that price as I stated earlier though…Seller was even thinking of knocking the wall down to open it back up as one big house. In looking at the market and doing comparables today it makes me wonder how long will this house sit on the market if I buy it from the seller. Another home is being built next to it and the seller of that property told me they would buy it if they was not getting that one built WHAT EVER THAT MEANS!!! Still doing my research on this, it’s giving me a headache already :banghead but I am not for one minute not thinking of a different way to make this work.

You cant compare a 2 unit (possibly 3 unit property) to the single family residences in the area. An appraiser should know better. To accurately get an indication of the value, the appraiser must compare similar properties.

In the conventional loan markets underwriters would more than likely reject any type of appraisal that was based purley upon unlike properties.

Really dig deep on what the sellers motivations are. Is there something wrong with the property unforseen to you? Zoning, structural, or anything else they dont want part of? How much would it cost to turn back into a single family?

Really dig deep on what the sellers motivations are. Is there something wrong with the property unforseen to you? Zoning, structural, or anything else they dont want part of?

Do they see dead people? :shocked

:shocked :shocked :shocked LOL Do they see dead people!!! Ha Ha Ha that is definitely my laugh for the day!!! However, I will do some more research on this property to find out what is really going on. To make it back into a single family dwelling is only a matter of knocking the wall down. :flush

$1600/month per side rent? $3200 rent on a property that’s supposedly worth $1 million? Even if you put down 20% you still wouldn’t even have enough rent money coming in to cover JUST the mortgage, nevermind expenses. What kind of cost is involved in making it a SFH again? I imagine it won’t be cheap to rip out a few walls, rip out the duplicate kitchen, put it back on single utility meters, etc. That doesn’t include all of the other headaches like pulling permits for the work (if it wasn’t legal to start which it might not have been you might be opening a can of worms). What about the weird guest house type thing out back? Was that legally built or is that a weekend project? If the inspector comes in to check your other work and sees that is he going to make you tear it out if its illegal? Probably. Better make sure its legal, if not exclude it from what you think the property is worth.

Was it appraised as a duplex or is that apprasial an estimate of what it could be if converted back? What did he use for comps if he was appaising as a duplex? I can’t imagine there are tons of million dollar duplexes with weird guest house things out back. Realize this, anything out of the ordinary makes homes harder to sell and increases hold time and holding costs, it also reduces prices.

This is a mess (imo). My first residence was a SF that had been divided into two units, lots of work to convert back into a true single family. Knock down the wall, rip out the second kitchen, switch all utilities to a single system etc. This is a different animal and is either a self supporting multi-unit rental property or you spend big bucks to convert it to single family, upgrade the guest house and sell it as such. Doesn’t sound promising.