I have sellers (husband and wife) who are investors. They are selling 2 condo conversions in an old 2 family house. The properties (2 condos) can be delivered 6-8 weeks from closing. They are gonig to be luxury condos in a place that has fantastic potential. They are very accomidating and flexible. They are offering 6% sellers concessions in which would amount to about $20K - $25K in order to help 1st time home buyers…in my case, 1st time RE investor. I can’t afford to buy and hold because of negative cash flow. I’v thought about a lease option and take option money to offset montly negative cash flow. The best option for me right now would be to turn around and sell it as soon as I buy it because of the price I can get as well as the concessions. (Unless someone can tell me a better idea) My question is, how do I get into this deal without any cash of my own? Also, how can I get those concessions to pay for a downpayment so I have instant equity? The sellers said “ask for the moon and we can work something out”
Seller concessions on an investment property are limited to 3% of the purchase price.
good to know, thanks. These sellers are extremely flexible so I’ll see if we can work out the entire amount taking another way. Any suggestions anyone?
Need some more concrete numbers.
There may not be enough room for profit if you have to re-sell right away and pay real estate commissions.
Some sellers are flexible because they want to exit the property. Others may be flexible because they are getting a premium for the property and have a lot of leeway. The latter may not be the best road for another investor.
I don’t have concrete numbers because of the lack of comps. But
There are 2 condos in one 2 family house. One is listed at $439K and the other $395K. right now the house is a mess. it is going to be a complete gut rehab that can be delivered 6-8 weeks after closing. I don’t have comps for condos in the area. It’s in an area where a lot of old beat-up mutli’s are starting to get rehabbed into luxury condos. I only have comps for other multis. i need to get the comps on luxury condos in the area if there are any. My thought is that with the concessions and a somewhat under market price, I can sell immediately for a profit if I reasonably price it (a little higher than what I paid) as an FSBO. The sellers said that they would be willing to cover holding costs during the construction time. that would give me about 2 months to sell without incuring much holding costs. The sellers seem genuinly interested in helping and because of their flexibility, there has to be a deal here somewhere. It’s just a matter of how to structure it. any advcie I’ appreciate.
- Sounds like you need to get your financing in place first unless they’re going to do seller financing. You can’t know if this is a good deal until you’ve established the terms and financing. You need to see how much you’ll pay in points and other holding costs. There’s a list of private lenders on this site.
Why are you paying for their costs during the build anyway? If the sellers think this is such a great deal, then maybe they can finance it for 2-3 months AFTER completion.
- This sounds risky. I hope you have experience in this area, but it doesn’t sound like it. If it’s such a great deal, why wouldn’t the sellers just go FSBO and sell it themselves? If they’re offering 6% concessions, they can even afford to pay an agent to list it so they can sell at market.
Trying to sell FSBO is tough, especially if you don’t have comps to justify the price and don’t have any representation. Since there are no comps, I’d make the deal contingent upon the appraisal and inspections.
- I don’t like that they want to close first and then have you take possession two months or so later. Even on new homes from national builders, the deal closes once the product is done and you can take possession. Otherwise, you’re responsible prorations on incomplete work. What if the project doesn’t get completed or isn’t up to code? Who pays for builder’s insurance? Do they have all of the right permits? Too many open ends on this one.
Get an agent or a lawyer to help you at least. As experienced investors, they already have the upper hand.
Dee,
Be very careful when using a lease option: Lease options can be dangerous. There are serious pitfalls as judges seem to be putting their collective feet down on them as “disguised sales”. Click here and go to reply #6 for the full details:
http://www.reiclub.com/forums/index.php?board=22;action=display;threadid=12496
Good luck.
Da Wiz
- You’re right, so far there are too many unknowns here up to this point. I just started to look for financing as I just spoke with the sellers last Thursday.
The sellers have already said they’d be willing to pay for the holding costs for a few months post closing. But should this be treated as a pre-construction where I put a percentage down and then close after there is a finished product?
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I don’t have experience with anything. I’ve never done a deal before. The seller is also an RE agent. It may sound like BS, but the sellers seem genuinly interested in helping.
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Assuming the numbers pan out in my favor to make a decent profit and all the right paperwork is in place, do you think a pre-construction deal is the way to go?
I would certainly have my lawyer look at all paperwork.
Thanks for the response and any future advice.
You’re mistaken. I never mentioned a lease option. I was talking about seller financing, which is not the same thing.
We’re trying to figure out financing and terms to decide whether he can flip the property. Leasing it from the seller would not make sense since he doesn’t want to hold the property. A typical lease option is for a longer period of time than a few months.
Dee,
You didn’t mention a lease option, but jrsmitty wrote, “I’ve thought about a lease option and take option money to offset monthly negative cash flow.”
Da Wiz