L/O Fixer-Uppers to Investor

[Kimberly 0]

What would happen if you subletted to a supposed handyman and he was a hack and messed the place up even worse. I could foresee this giving someone a big headache when the original owner wonders what happened to his property.

 

Good point, Jim. And the very reason my contract states that any changes to the property require written permission from the homeowner.

If the guy truly is a handyman (what he does for his living), he like anyone else in his trade, ought to be able to give you references for his work or preferrably the last three jobs so you can check with his customers and see if they were satisfied with his work.

 

Kim

[<Steve> 82]

This "Rehab investor" I will be meeting this week subs out most of the work to specialty contractors or sub contractors. Now fortunately, I've know this guy and have seen his work on other houses, so I feel comfortable. But I do agree that if L/Oing to an unkown rehabber, references are a good thing and should be easy to check out.

 

When I think of a rehab property, it is more than just cosmetic type fix-ups, carpet and paint. It is where a property is 65% or lower, below market value. Destressed, boarded up type properties. That way there is plenty of cushion for profits and repair.

 

<S>

[<Steve> 82]

OK, I am meeting with the investor tomorrow, and I have a property to talk with him about. This is not a huge deal and a little skinny for a sandwich due to repair work. At best this deal will be a win bringing all the players together to complete a deal. At worst, it will continue my education, which is always a good thing. After looking at the house doing some negotiating, the seller has lowered the price and is hanging in there. There still maybe some negotiating room. Also, this house was found by e-mail marketing.

 

The house

80Kish Market Value

sell price $72,500

Rent $600 to $650

Market Rent $700 to $750

Interior Repairs 2k to 3K

 

House condition: Exterior good, Interior needs carpet, painting, kitchen cabinets and misc. updating light fixtures etc... The spread for the rehab investor is small but he is hungry, and I am not going to be greedy here.

 

L/O Assignment

L/O price $72,500

Rent $600 to $650

(My fee) Assignment Fee 1% $725

 

Selling Options

-Sale retail

or

-Rehab Investor can refi out his profits and cash seller out then, I bring in a t/b and do a sandwich L/O or CA with the Rehab Investor.

[Adam King (MI) 1]

Hey guys/gals,

Boy, some good stuff here. Just want to throw a little experience on the table if it may help.

I have done at least 12 deals that I can think of off the top of my head where we LO'ed to a rehabber with a balloon payment. So far, if the house needed that much work it was a no brainer. And yes, we have done it with new investors that were not contractors. They have fixed the properties up and are now sending us rent checks on time all the time. Another point to make is that if the house needs enough work in the beginning, then they really couldn't screw much up. That kind of stuff is usually in writing anyway. We make them agree to do "so much" amount of work so they don't come back and cry "equitable interest". That can be a big problem if they decide to tare the house down and rebuild. (Which they have) That took a whole lot of paperwork to make sure everyone's tails were covered.

Just my two cents.

 

Steve,

 

The spread for the rehab investor is small but he is hungry, and I am not going to be greedy here.

 

This deal is stupid tight. I would bet this guy is a new investor trying to break into REI. I wouldn't touch this with a forty foot poll as a rehab unless the terms were so much in my favor that I couldn't turn it down. I.e. seller agrees to allow me several months "free" rent to do the repairs, (in which I would take the deed) and the payments were under $400 a month after that. This would however, be a good CA to a handy person with some benefits. I.e. they move in for just a couple of grand and get the same the investor would. I am doing one like this right now and it was "negotiate for the buyer's best interest" from the get go. You can't have people move into properties that need a ton of work when there's nothing in it for them. That's asking for trouble.

Keep us posted on this one I think it should turn up interesting. And for the record, I don't mean to be negative, just having some "rehab investor" doubts. This doesn't mean that the guy/gal can't do it and it won't work, just thinking of plan B.

Regards,

Adam

PS If it's done right, I think there's more money for you to make here than just $725.

[MichaelC 160]

The deal is, indeed, slim. Doesn't mean there isn't a risk free buck to be made, however. How long a term can you control this property for? If you can lock this deal up for 36 months or more, the value of your deal with the seller increases quite a bit.

You may be selling yourself short with that $725 assignment fee. If you haven't already discussed it with this particular investor, I would wait and see if he quotes you a figure first. He may surprise you in a positive way.

[<Steve> 82]

Thanks Adam-

That is one thing I like about this board, no sugar coating, folks speak from experience and as I am moving from my education with lease options into “Wheeling and Dealing” there is still that learning curve.

 

I offered the seller 66K and the seller came back with $72,500. It is to skinny for me to do a sandwich with the needed repairs I figure. I was going to pass and this deal was going in the follow up file. However, the rehab investor called me yesterday to confirm our appointment and see if I had any properties. So, I figured what the heck, I can either do a CA with the seller or assign the l/o to the rehab investor collect a quick fee and get out. Then maybe come back at the back end should the rehab investor need my services to find a t/b where I can collect another fee. This rehab investor lost his job and is now doing REI full time. So he is motivated for deals.

 

Michael-

I have this l/o for 24 months with the seller. I did goof and mention the 1% assignment fee. I should know better. I will be meeting the investor in a couple hours will see if he is interested.

 

Thanks for the help.

<S>

[MichaelC 160]

I can either do a CA with the seller or assign the l/o to the rehab investor collect a quick fee and get out. Then maybe come back at the back end should the rehab investor need my services to find a t/b where I can collect another fee. This rehab investor lost his job and is now doing REI full time. So he is motivated for deals.

 

I have this l/o for 24 months with the seller. I did goof and mention the 1% assignment fee. I should know better. I will be meeting the investor in a couple hours will see if he is interested.

Something is better than nothing. If you can flip this quickly and without marketing expense and aggravation, grab the money and run. The bottom line isn't always the total value in a deal. It also includes the connections made and the experience gained.