This week we had an offer accepted on a HUD home here in Fort Wayne, Indiana. Today my re agent calls me and tells me that another agent called him this morning and has a buyer that had been watching that house and trying to get her financing in order to make an offer. They were asking $61,000, we picked it up for $45,000. My agent is trying to set it up where we close on it and then immediately sell it to her and put $5,000 in our pocket. Sounds like a sweet deal to me!
Here is my question. My brain started turning (smoke out of my ears and all) and I asked my agent if there was a possibility of doing it this way: We buy it for $45,000 and then sign a contract with her to have her buy it from us AFTER we rehab it (2-3 week turn time) for say… $69,900. My thoughts were that she could have LIMITED control on the rehab, like picking colors of paint, picking the wood laminate flooring that is going in, things of that nature. Now we would only let her choose a few things like that since we are on a budget and a time schedule.
I would even be willing to help with down payment assistance and closing costs with a $74,000 offer. It’s probably obvious I have never done a deal like this before and was just looking for other’s input and ideas. So if you got it, bring it!
I am guessing that you are planning to spend only $10K on rehab making your investment in this property $55K. If you turn around and sell it for $70K, you only have a $10K profit after paying a 6% sales commission and your holding costs until the sale goes to settlement.
Rehabs are notorious for costing twice as much and taking twice as long to complete as originally planned. Do you want to take on the risk of going over schedule and over budget for such a small payday? Go just $5K over budget and you are not making any money on the rehab effort at all.
If you can sell the property immediately for a $5K profit without assuming any additional risk, that may be the way to go for now. Do the rehabs when you can profit at least $20K.
Better make sure you didn’t buy the HUD as an owner-occupant. I’m not sure if it’s the same in your area, but it’s almost impossible here to pick up a HUD on the investor round.
If you end up letting her pick colors that are…um…“special,” then ensure that you get a large enough earnest money deposit–100% NON REFUNDABLE–to cover the cost of painting it again when she backs out of the deal.
Keith: Got it. I have done rehabs and understand that 2-3 weeks is a quick turn time. I have a pretty awesome team and a great contractor that can make this time absolutely possible on this one.
DaveT: Our budget was less than 10K on this one. Gotcha on the numbers.
Dee: This home was open to all bidders.
Paul: I agree 100%.
My wife and I talked about it last night and have decided to wholesale it to the buyer, but are going to try to get more than $5K, maybe $6-7K. Thank you all for your input.