Re: JB 1 more quick question - Posted by JohnBoy
Posted by JohnBoy on February 26, 2002 at 10:28:15:
You will have to let the investor inspect the property. There is no way around this. They need to see the property so they can determine what it will cost them to rehab based on their own criteria. No one is going to commit to an offer without seeing the property first. They can try and wait it out until your contract expires, but meanwhile you’ll just sell it to someone else! This is why you don’t tie the property up under contract with an investor unless they put up all your assignment fee up front as non-refundable earnest money. It’s called an assignment fee. Some investors will just pay you your assignment fee and take your contract and show up at closing to close on the sale. Some will want to wait until the closing before paying you anything. If they want to wait until closing then you would want to require they put up whatever your assignment fee would be as non-refundable earnest money to be held in an escrow account by your attorney or the title company with written instructions that that money is to be released to you upon closing or if the buyer backs out for any reason, other than being able to get clear title to the property. That way you prevent the problem of having the property tied up with someone while they just wait it out until your contract expires with the seller to try and go around you.
On a property worth $160k ARV I would estimate a $25k profit that any investor you flip to would want to make out of this.
So you would need to figure in the $25k profit for the investor, the $15k for repairs, up to six months of holding costs, and 6% commission for a realtor to resell the property for the investor. Then figure in your profit you want to make. Add all that up and deduct from the $160k and that would be the maximum price you could offer to pay for the property.
$25k profit for investor
$15k for repairs
$4800 for errors in repair costs (3%)
$9600 for realtor commission to resell
$6000 for holding costs up to six months
$5000 for your profit
Total costs = $65,400
$160k - $65,400 = $94,600 MAXIMUM purchase price!
So I would offer $80k leaving room to come up some with a counter offer.
If you get an offer excepted then I wouldn’t say what I wanted for an assignment fee to the investor your going to flip to. Instead I would show them the property and let them make me an offer as to what they will pay me for the property first! You never know, they may offer more than what you expected them to pay and could make a larger profit!
If they offer you a good price to where you stood to make a sizable profit on this then don’t fool with trying to assign your contract. Instead, write up a new purchase agreement between you and the investor for the price he is willing to pay and set up a simultaneous closing. That way your investor won’t know how much you stand to make on this for just flipping your contract to him. If they know how much you would be making they may try to cut you down more on the price because they may think you would be making to much profit for just flipping your contract.
Then at the closing the title company would take the funds your investor brings to closing and out of that they would pay off your seller for the amount you agreed to pay them. Then whatever was left over the title company would pay you the difference! Neither the seller or the investor would know what you were making off the deal! You would just take your contracts to a title company and tell them you will be doing a simultaneous closing between your seller and your buyer. They will know how to handle setting this up for you. If you get a title company that says they can’t do that, then find another title company that does do these.
If you use an attorney he/she should know how to take care of this for you. For a few hundred bucks it would be worth it to insure everything goes smoothly since you’ve never done this before. Then after you do the first one you will have a better understanding of the process involved and you can handle the next one on your own or continue to use an attorney if you feel more comfortable doing that.
If you do end up doing a simultaneous closing make sure you get as much as you can from your investor to be held in escrow as non-refundable earnest deposit. I would want at least $5k put up to show he’s a serious buyer. Make sure the earnest money is held by YOUR attorney or the title company with written instructions that the earnest money is to be released to YOU if your buyer doesn’t close for any reason other than getting clear title. If your buyer balks over this they find another buyer that is serious about buying the property! This prevents anyone from trying to go around you and deal with the seller directly!
