Is There Any Reason I Can't Do This?
So I'm doing an industrial condo conversion. Buy 30,000 square feet, chop it up into smaller pieces and sell the smaller pieces. Is there any reason I couldn't flip a unit to an investor with an agreement I would buy it back a year later for a nice profit? If I sold two of the five units at a substantial discount to retail I could fund the whole deal without a bank. Then I agree to buy them back a year later for retail. Investor makes a nice profit-- I make a nice profit.
So my questions.
1) is the presence of the "bargain" sale to the investor going to make it harder to get the other units to appraise.
2) is there some reason that my agreement to repurchase would be construed as deceptive to the lender as if this were not a true sale?
3) in what way is this different from all those pre-construction discount deals we see where the investor hopes to flip his contract prior to closing except that I'm agreeing to buy the flip when the time comes?
In response:
1. The units still appraise at the current market value.
2. Make the agreements stipulate that you have the right or refusal to repurchase later.
3. Your way is more solid since you are buying or have the option to buy.[ Edited by waterfront on Date 04/29/2004 ]
I'm thinking about doing the same (industrial condo), but without your financing wrinkle. Since there aren't any decent 20K -40K sq ft buildings around here, I'll probably have to build my own, which will stretch things out considerably, unfortunately.
What size bays are you doing? Putting in mezzanine floors or not? Do you have docks or drive-in doors?
Inquisitive minds want to know!
1) is the presence of the "bargain" sale to the investor going to make it harder to get the other units to appraise.
It seems like it would. Esp. if there is a limited stock of units.
2) is there some reason that my agreement to repurchase would be construed as deceptive to the lender as if this were not a true sale?
I agree w/ the right of refusal, But it seems you would have to make it an option to buy the property, not a contract to buy. The latter seems like to could some how be "fixing" the market.
3) in what way is this different from all those pre-construction discount deals we see where the investor hopes to flip his contract prior to closing except that I'm agreeing to buy the flip when the time comes?
good question. I think that it might be that you're buying it back and "using" their $ in the mean time.
Why do you need to buy the units back? Do you forsee a large jump in value?
-Brandon-
Seems to me the promise to buy the units back would re-assure the investors who bought them. In essence I'm selling at wholesale priceing and offering to either find retail buyers or buy back at retail within one year.