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moveright

Calling all cars - I need backup

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Ok, I need a bit of advice from you savvy investment machines. Part of being a seasoned investor is situational awareness, identifying the animal and knowing the best way to hunt it. I can't decide what to do with this, so it would greatly help if you all could weigh in.

 

WARNING: this post is a bit lengthy. but I'll be your best friend if you read it all. :blush:

 

Spoke to a seller the other day. They've got a brand new house (1 year old anyhow). They built this new house for a family member after tearing down the old one. Anyhow, hard times were fell upon and they would like to unload the house. The seller was really cool. Very reasonable, very upfront about the situation and also, very realistic. They told me that they were $120k of their own money into the house, and the mortgage(construction loan, whatever) was about $160. Seller said "I know the market is terrible, I know.. I'm just all worn out with this place and want to get away from it. I know I'm not going to make money on it, I am also not interested in listing it for some super high price and see if I can get it.".

 

I asked what they wanted for the house and the response was "I'd be happy with anything near $225k. That will pay off the debt and leave me with some money to get another place, my credit is shot so I definitely need a few bucks to put down".

 

Ok, that's the seller rundown. Here's some info on the house, this is interesting.

 

It's apparently a huge house. A rancher, finished main floor - 4 bedroom 2 bath(one of them is master ste bath). jacuzzi, etc... Here's the kicker though, the BASEMENT is a clone of the upstairs. 4 bedroom 2 bath. However, it's not finished. it's framed, plumbing and electrical are in. It's just not FINISHED. Remember, the seller is "all worn out with it and just wants to get away(they were building it for their mom and she died just recently so there's a fair amount of emotion involved".

 

The driveway is gravel, didn't get around to paving it but was just about to, even had an estimate from a paving company. All that AND it is sitting on 8 acres of woods/farm land.(not much of that left in these parts for a fair price). The seller told me that about 8 months ago (when their mom died) they spoke to a realtor about selling it. The realtor wanted to list it at $350 but told them if they would finish the lower floor and driveway, he'd be comfortable listing at $510.

 

Ok, now on to me. (I know, I know, long post - I type fast so I lost track of how much I ramble). I spoke to my realtor about it briefly and he told me that he wasn't able to give me a serious value for the property due to the rural nature of the area, few houses and little if any sales activity. He said I'd be best off to get an appraisal on it. (which I seriously don't have 400 bucks to spend on right now) He also told me "In general though, you're potentially talking about an 8 bedroom 4 bath house sitting on 8 acres for a really low price. I'd try to get them even lower if you can but my guess is that this could be a significant profit for you almost any way you cut it".

 

Here's my situation: I really really really really want to quit my job and do this full time. However, I need a small pile of money to keep the repo man off my lawn. I've got some good CA L/O stuff in the pipeline but I'm impatient. I got a call from an investor yesterday. She saw my signs and wanted to know how I was doing. We chatted for a bit and she told me that she mainly wholesales and buys/rehabs/sells. She said she was looking for her next big project and if I come across anything, let her know.

 

I almost feel like I should just talk this seller down to $200, and flip the contract to the investor for $210/215 thus creating the "pile" of money needed for me to quit my job and pursue my career.

 

Thoughts?

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All of that, MD, and you answered your own question:

I almost feel like I should just talk this seller down to $200, and flip the contract to the investor for $210/215 thus creating the "pile" of money needed for me to quit my job and pursue my career.

I was going to tell you the same thing. This is a unique property and not one you'll quickly find a t/b to fill it with. That said, get a Pure Option on it for the lowest possible price and for the longest possible term. Give the homeowner a buck to make it legally binding. Then comes the hard part and your payday. You'll need to market like hell to find yourself a buyer, pocketing the difference between your price and your buyer's price. Easier said than done, to be fair, but the best way to make this deal fly without any risk to you.

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All of that, MD, and you answered your own question:
I almost feel like I should just talk this seller down to $200, and flip the contract to the investor for $210/215 thus creating the "pile" of money needed for me to quit my job and pursue my career.

I was going to tell you the same thing. This is a unique property and not one you'll quickly find a t/b to fill it with. That said, get a Pure Option on it for the lowest possible price and for the longest possible term. Give the homeowner a buck to make it legally binding. Then comes the hard part and your payday. You'll need to market like hell to find yourself a buyer, pocketing the difference between your price and your buyer's price. Easier said than done, to be fair, but the best way to make this deal fly without any risk to you.

 

 

Thanks for reading that lol!

 

Ok, couple of questions.

 

1) Do I have principal interest in a pure option? do I need to protect myself from being accused of brokering real estate without a license?

2) Is this non-exclusive? can someone else purchase the property while I have an option on it? (I assume so, due to the fact that it's an 'option' and not a mandate)

3) I'm thinking I may even discuss assigning this property to that investor I was talking about. It would be almost like a wholesale deal I suppose. For example, if I can get it at $200k and sell/assign the contract to the other investor for $215, why not? quick $15k right?

If I went that route, what protects me from the other investor snatching the property out from under me?

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1) You are a principal. You have a signed agreement between the homeowner and yourself, giving you the right to buy it, sell it, or assign it.

2) It can be exclusive or non-exclusive, but the reality is to get the deal it will probably be non-exclusive. The specifics of how non-exclusive it is would be worked out between you and the homeowner.

3) Nothing shabby about a quick $15K. Go for it. The only thing that stops any other investor or buyer from screwing you is you. You need to be in control of the deal and the people involved. Good agreements are a must, also.

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The real estate agent the that you are working with, should be able to do a CMA (certified marketing anaylsis). They should not do a value on if the downstairs was finished, just as it sits.

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1) You are a principal. You have a signed agreement between the homeowner and yourself, giving you the right to buy it, sell it, or assign it.

2) It can be exclusive or non-exclusive, but the reality is to get the deal it will probably be non-exclusive. The specifics of how non-exclusive it is would be worked out between you and the homeowner.

3) Nothing shabby about a quick $15K. Go for it. The only thing that stops any other investor or buyer from screwing you is you. You need to be in control of the deal and the people involved. Good agreements are a must, also.

 

 

But wait! omg, this thing is killing me. I so wish I knew all the details of this.

 

ok, if I have an option to buy, an OPTION on it's face can't be exclusive. fine. But, as I am marketing for buyers OR if I call the other investor and say "hey other investor guess what!??!?! I got an awesome property for a great price you want it?" they are going to want the details, look at it, etc... all the while, ANYONE(as far as I know) has the ability to go past me and buy it outright. so, I have the OPTION to buy it at $200k. then I talk to the other investor and they end up snaking the whole thing. talking to the seller and saying, "I'll give you 205k right now".

 

any protection for me? Have I missed the point?

 

Sorry MC, I'd be lying if I told you I wasn't panic stricken over this. I'd be lying if I told you I wasn't desperate for that 'break' to leave my job. If it's right in front of me and I can't see it, I'm sorry. It just seems on all sides that it's a great deal, and one that is not exclusively mine ergo anyone, including the other investor could snatch it.

 

I definitely want to flip it to the other investor. What sort of dialogue do you recommend? I don't mind botching up a few early on deals but this one can't afford to be boogered up. Would you agree?

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You need to be in control of the deal and the people involved. Good agreements are a must, also.

 

 

Like a non-compete agreement with the other investor? or some other simple instrument to keep them quiet?

 

My old man is an attorney, you must understand so, I'm very sensitive to 'details' and I know that when it comes to a disagreement, the winner always finds his/her trophy in the 'details'.

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In my area, CMA stands for: Comparable Marketing Anaylsis, or "comps" for short.

 

Probably 6 of one, and half-dozen of the other.

 

Lynn (FL)

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Lynn,

You are correct. My Droid phone has a habit of finishing my words when I am typing.

 

Thank you for catching that.

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A wholesale deal might work if the investor has the cash upfront. The wholesalers here in my area will pay up to maybe 70,000 cash or more on the deal but not much. I started out trying to do wholesale deals, marketing to probate. I talked to a very nice lady that lost her sister and got the house. She was motivated in trying to sell the house and I made an offer after looking at it. Nice house in a good neighborhood. She wanted to think about it and have it appraised. I called her back after a month and she said she was still thinking about what to do. I got to thinking, I dont like offering half of what the property is worth. So, I came here where everybody in the deal can be happy. Thanks to Michael and his site. Sorry Michaeld, didnt mean to ramble, but is your investor friend cash friendly and you can just sign a purchase agreement with seller at 200 and assign it to her for 215? Thats alott of cash, so just a suggestion...I'm a rookie...As far as what to tell the owner, I was upfront and said I have buyers that will pay cash. If you sign a purchase agreement you are in control, thats my 2 cents...

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Michael, you are overthinking the entire process, to the point where you are soon to become the poster child for Paralysis of Analysis.

The Option to Purchase is an option for you. For the seller it is an obligation to sell if you decide to exercise said option. Hence, you are in control of the deal.

Now, if you need to make it non-exclusive, do so, but put some protection in place. For example, you can have a right of first refusal in the agreement. Meaning, if the owner gets an offer from someone else, before he can accept it he needs to give you the opportunity to match said offer.

In the meantime, my sincere advice to you is to stop worrying about all the things that are going to conspire to destroy you and get on with making offers. You'll be surprised at how uneventful most of these deals are.

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Yep, just put it under agreement with an option, I doubt a serious investor would try and go around you if you're really offering them a deal. The investor-buyers I know are HAPPY to pay a wholesale fee if it's a real deal and meets their criteria. And if it doesn't, then they wouldn't pay a wholesale fee because they wouldn't buy the property!

 

Even though you aren't 100% comfortable with the whole process, an option would be ZERO risk to you and would give you the right to try and find a buyer. DO IT!

 

Might I also suggest not getting emotionally attached to this deal (or any deal for that matter), don't count your chickens before they hatch! Go in to it with confidence but it sounds like this is your first real estate transaction, so treat it more as a learning experience to prepare you for all the deals that have yet to come, and if you can make some $ from it even better! Good luck!!!

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Ok, good advice. so, if I have the option on it, then technically the seller can't sell until my option period is up because if they DID sell and I tried to exercise my option, there would be no house to buy. no?

 

 

Ok, I'm sure I just threw all my cards on the table about how much I hate my job lol..... holy crap it's raining sideways right now. ok, nevermind about that.

 

I looked at this house. it's exactly the way the seller described it. Here's my thought. I'm going to put an option for $xxx,xxx. then I'm going to market it as a handyman special for 10k more than the option. reasonable?

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heheheh poster child for paralysis of analysis. AGREED! GUILTY AS CHARGED!

 

When I first came here, I proclaimed publicly, my ineptitude in real estate. Someone(I can't remember how) told me not to worry, they said "I look back at some of my old posts and can't believe I ever asked those questions". well. I guess now all I have to do is wait lol.

 

 

Seriously, you all are totally awesome. MC spoke highly about his forum community during our pre-manual-sales courtship as it were. I'm happy to be here.

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Ok, good advice. so, if I have the option on it, then technically the seller can't sell until my option period is up because if they DID sell and I tried to exercise my option, there would be no house to buy. no?
If the option is exclusive then, yes, the homeowner cannot sell to someone else. But if the option is nonexclusive then, he can sell or he at least must give you the right of first refusal, according to whatever agreement you two have reached.

 

I looked at this house. it's exactly the way the seller described it. Here's my thought. I'm going to put an option for $xxx,xxx. then I'm going to market it as a handyman special for 10k more than the option. reasonable?
Reasonable if and only if the market is accepting of the price. Your objective is to lock in the lowest possible price for the longest period of time. Then go out and find your buyer at a higher price. You can exit in one of two ways. One is to quickly assign the option for a fast buck and be done with it. Or, if there is mucho equity in the deal and it's worth some added hassles, you can sell the property to a third party and cash out at closing. Know your market, MD, and listen to it.

 

Seriously, you all are totally awesome. MC spoke highly about his forum community during our pre-manual-sales courtship as it were. I'm happy to be here.
:) Be careful what you write. In these times of Twitter and Weiners, that can be taken the wrong way. . .

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