Convince Seller To Wait For Rehabbed Sale?
I know of an area where 45 year old 3/2's are being torn down and big $500-600K homes are going up (1 acre lots). My rehabber/developer wants to come in and do one.
Does anyone know of an approach to use with a seller where payment to them can be delayed until we sell the rehabbed/new construction home ?
Purchase Option would require monthly payments (may not be too bad) but we are not on title. Land Trust would put us on title. Any advice??
DMB
This is what we are doing in a high building devel. We bought a 2/2 with two extra lots that needs updated to be a 3 to sell well. (it is 35+ yrs old). There is recently a lot of high end 300+ housing being built in this sub, values are going up dramatically.
Ours is a motivate seller, been making payments on the house in our lease he don't have to worry about the house payments, insurance and taxes becuase our lease payments to him cover it all, so he is will to wait on the close to help us.
We told him that to get a ecent rate (which is true) on a loan and make it a good rental at what he wants (actually he sold it to us 20K under apprasial) we needed to update and upgrade the house. And if we defualt he has an improved property that will sell better, and we are making all his payments so he's not out anything and everything to gain by waiting. We also have a contract filed so that he cant sell the house out from under us when the improvements are made.
We did a lease purchase on a 6month lease to close at or before term end. Locked in the price, dont forget that. This house will reappraise at much higher with the work done at the time of close and our lender is tickled pink.
We are rehabbing the house right now. We will close on the house and separately on the lots. The owner still gets his $$$, we get the improved house on a note, and the 2 lots free and clear.
We will sell the house or lease it (if we hold it we will refi the equity out and use that to build on the empty lots if we sell we will use the profit to do the same) We have a great builder to work with already lined up.
You could use this idea if you like.
What exactly did you record. My vague understanding of lease options is that filing a memorandum or something stating you have a claim to a property will only cloud the title. Did you sign a purchase agreement?
Yes, we did sign a purchase agreement on the standard state RE contract that closes on or before 6mth period as we determine (nice thing about the special Provisions section) this was listed with a realtor but a separate LEASE PURCHASE contract is filed (not the "realtors contract) at the courthouse this was per our attys advise.
This is simular to a contract for deed. It actually keeps the seller from pulling out of the agreement and keeps us from doing the same. My/sellers realty broker did not care about "what we and the seller agreed to out side of his interest, and his was covered with his form held in the title office until the closing date which is TBD (to be determined).
If we finish early, we will close the deal early; if not; we will close on or before the 6 mth term.
The contract we have is a contract for Purchase following a lease period.
If they tried to sell the property (yes the title would be clouded if the actual terms of sale where not noted) anyone researching the title would find it is already actually sold with condition of a prior 6 month lease. It is not an option, it is a purchase.
There are Lease Options and Lease purchases, legally the different is the "wording".
They agree to sell to us at "$" and close by "date" period. All legal, witnessed & filed.
The nice thing is we "the buyers" get to determine the closing date as long as it is by the end of the lease term.
If you do not know who or how you are going to mortgage or sell this property from/to before your six months is up then you should probably not enter into this kind of deal. But if you can't even arrange on a worse case a HML by six months, your may be in the wrong business.
One rule, we go by, is to know our exit plans (at lease 3 options) before we sign any contract. Know what you will do with a property and if that don't pan out your next option, etc.....
Our contract is designed to be more than a cloud on the title and will stand up in a court if it came to that. This is why it is very important to have an experienced RE attorney in your corner. A good atty can help you modify any contract to be firm and realitively secure (if that is possible) for any deal. We always honor our deals and have been very blessed in whom we have worked with.
No one will lose on this deal and all have everything to gain. Win Win situations are best.
Dreamin,
Thanks for all the input. I need to find a good RE atty to structure this, but I think it can work.
I wanted to give you a rough outline of deal to see if you have any other comments. List price is $350K and house is FSBO for about 2 mo. make a 6-8 mo. lease purchase agreement for maybe 325K. Put $50-75K in (second floor & new garage). Begin advertising immediately for $450K-500. Pocket $50K-100K minus carrying costs, advertising, and possible realtor fees.
I'm not sure how you fund your projects, but any advice regarding funding options would be appreciated as well.
What do you think??
dmb
Quote:
On 2003-11-03 11:18, dmb wrote:
Dreamin,
Thanks for all the input. I need to find a good RE atty to structure this, but I think it can work.
I wanted to give you a rough outline of deal to see if you have any other comments. List price is $350K and house is FSBO for about 2 mo. make a 6-8 mo. lease purchase agreement for maybe 325K. Put $50-75K in (second floor & new garage). Begin advertising immediately for $450K-500. Pocket $50K-100K minus carrying costs, advertising, and possible realtor fees.
I'm not sure how you fund your projects, but any advice regarding funding options would be appreciated as well.
What do you think??
dmb
I think it is possibly a great deal. Really cant give you and okay, dont know your area etc..... You'll have to decide. Talk to this builder too he is probably more experienced, but can he do the job in the time suggested and what if it rains, plywood cost skyrocket, do risk assessment and plan for the "WHAT IFS"
Your construction costs should be broken down and you may want to consider a margin of error on your estimate. Many times, even with experience ,what you think the cost will be often will be more, sometimes you get lucky and it is less.
You really need to find an experienced RE atty. Talk to some title offices and or your county clerk. (depends on your size town mine is small).
Get or make a drawing of the proposed completed project : when getting lenders for construction like this a history of what you can and have done plus what you propose to do is important. A portfolio is very very helpful with lenders. Hard to advertise a house for sale when construction is going on without pictures. Remember you may end up holding the house for a while too if it does not sell, that is a risk $$$ to make plans for. Can you afford to make the payments for an extended period of time (loan and lease).
Developing is harder that just doing a general rehab, very hard for beginners. This is really closer to development than rehab. There are permits, variances and all kinds of things you must know before beginning a project of this magnatude. I am not trying to discourage you but there is more than I could ever list to learn.
If this builder you spoke of is experienced and successful, use that as you foot in the door and your mentor so to speak. Partner up (do a legal one) but check him/her out with the local contractors association or other type agency.
Often he will already have a lender he works with. Good luck ,I hope you do well. [ Edited by Dreamin on Date 11/05/2003 ]