I’m not sure if this has potential, or how to work it, so I’m turning to you guys. There is a property in a hot area of my city (FMV - $200-250/sq ft) where older homes are being fixed up and sold for twice the amount.
I found a lady that is trying to sell her 4100 sq. foot home in this hot area. She can’t manage it anymore and it needs fixing up, which she doesn’t have the money to do herself. However, she is savvy enough to know she is sitting on some hot real estate and won’t “give it away to an investor” (her words)
She said she would consider allowing me to do all the repairs (about $75k worth) and we would sell the property and split the profits. She has a $375k mortgage. Rehabbed houses in the neighborhood that size go for $800k+. I stand to make $100,000+ after my repair investment is pad back.
How do I structure this where my rehab investment is protected? Am I going to have a hard time finding rehab funds since I’m not the homeowner?
Why not have her pull the loan for the rehab costs?
Thats a good idea. She has the equity and the ownership to secure the financing. Work out a draw schedule with her to cover the repair costs. Of course you should have a legal agreement in place specifying the sharing of net sale proceeds on the house.
I met with the lady today and found out a lot more. She has a $300k loan with a “Preatory Lending Company” They refuse to short sale because they want the house because of its potential value ($750k ARV). They have tried to foreclose two other times, so her credit is in the gutter (no rehab loan in her name). She declared a BK to save the home in the last foreclosure attempt, and needs $260k to pay off mortgage and all discharge BK debt.
Should I buy the house for $260k (in the present condition, it appraised for 460k, but a couple of investors offered her 350k) , then invest 75-100 in the rehab, sell for 700k-750k, and split the profit (350k-400k)?
She said she would rather lose the home to the bank and be out on the street than see some investor make $300k+ off of her home. As mentioned before, this is really a hot area where investors start courting older home owners when their health starts failing (kid you not).
That’s just plain stupid. Make sure you have an iron clad contract, this woman sounds like she might just try to cut you out entirely when it sells so be sure you have everything solidly in writing.
I know it’s stupid. But I’ve seen it alot. There was a man recently who let his 1.5 million dollar horse farm go back to the bank on a $300k loan!
I was thinking it might be better to buy the property, so at least I know I’m ahead from the beginning. She probably feels like I could edge her out of the deal too. Her main concern is that even walking away with $150k out of the rehab deal, she can no longer afford to live in that neighborhood because she can’t get anything over 900 sq. ft for under 300k! But with no money (foreclosure), she couldn’t afford a bus stop shelter!
The bank has already tried to foreclose on her several times, forced her into BK, won’t short sale, etc., but she would rather give the equity to the bank (and get nothing for it) before giving it to an investor? Her loyalty is misplaced and hard to comprehend.
I wouldn’t give her half, you are taking the risks; the bank is going to give her nothing (but a further black eye) if they foreclose…offer her 20% of the equity and remind her that this is far more equitable and fair then what they will receive from the bank. She has an opportunity to exit this situation with some dignity and good standing, and you are giving her a solution that allows her to have the wherewithal (equity share) to repair what has happened in the past and move on with a future.
Be fair, but firm and stand your ground (you are offering a solution to her problems [the bank]) and without it, her problems are only going to magnify.
Yes, her back is up against the wall. But what can a 54 year old single woman do with only $10,000? And she is so pleased with what I am doing for her, she has been calling other neighbors in this hot area, either in financial trouble or aging, and suggesting they do the same. I have three other homeowners in line after this one.
These homeowners get bombarded every week with investors knocking on their door and mailing letters asking to buy their home (for very little). Yes, I may make only $150k on this home instead of 300k. But at least I got the shot at it. The other 50 investors that tried didn’t. Sometimes there is more to life than money. In order to make good money in this hot area, I need the homes to do it. To me, 150k+ profit in six months is good money.
I have found a charming smaller residence for this lady. She is going to lease purchase during the rehab, then close after we sell the property. With 670% to put down on her new home, she will have a decent interest rate and much lower payments. She has her dignity and will again be a homeowner (in a smaller, more manageable property). I feel good about that!
You made it sound like she wouldn’t accept anything from an investor and would rather give her equity to the bank.
I’m glad you have found a middle ground and if you are willing to accept a higher amount of the risk for a lower return, then that is your decision (but, like you said, 150K in 6 mos. and providing this woman with a new affordable home makes you feel good).
Good for you!