Selling Separate Lots On Rehab Property
I have just put a house under contract for $675k. It is a large property with home, that includes two additional and seperate legal lots that are unimproved.
My strategy going in was to find a buyer for the two lots and close on the lots at the same time as I close on the house. I would then make some minor improvements to home and put back on the market. The lots will sell for around $300k and I have many interested buyers for them.
I was hoping to use the money from the lot sale for downpayment and to offset the amount of bank financing I would need to qualify for. I was just recently told by underwriter of mortgage banker I am working with that they will not take the lot sale proceeds into consideration (even with signed contract) but that they preferred I pay off their loan whatever I wished after closing with lot proceeds. My problem is that it will be hard for me to qualify for the larger loan.
Has anyone ever tried a simultaneous close like this? Is this just the mort. banker I am working with or will I face the same resistance with all others? Is there another path I should be pursuing? Your wsie comments are much appreciated.
Thank you in advance!
I would actually build two new houses of the lots and sell them. You could make a lot more money than just selling the lots.
I promised to update everyone on this deal, so here it goes. I apologize for the delay.
I closed on the purchase of this property a few months ago. As per financing, I qualified for the entire amount of the purchase, so I went ahead and got one loan covering the lot with house and seperate lots together . Working with mort. broker, I decided that if we first sold lots seperately from house, we could do a simultaneous transaction where we closed sale of lots and refinanced the original all-encompassing loan to just one covering the remaining property with house. I went this way because I wanted to defer the decision to incur any additional expenses associated with getting two original loans as suggested by some of the respondents in this thread earlier, just in case someone wanted to buy the whole thing together from the outset.
To give the details: On teh $675k purchase price, I negotiated 100% financing with an 80% 10/1 ARM interest only first and 20% second using a mortgage broker. Once closed, I spent ~ $10k making some improvements to the house, which included some new paint, extensive yard work, trash removal, powerwashing, leaky fixture repair, some electrical work, minor roof repair, and general cleaning. I also paid for a company to stage the house with furniture. I did this because I felt the empty house just did not show well without a more "lived in" look and I got a great deal with a company just starting out in the business.
Had to carry the house for a few months, but all worked out extremely well. I am happy to report that just last week, I closed on the sale of the entire property to one buyer enabling me to avoid the loan refi scenario above, and made a very nice profit. We even sold for more than asking when a multiple offer scenario played out. This is a property that sat on the market for almost a year before I purchased. Just needed some cleanup and re-positioning in the marketplace. I also have the greatest realtor who worked extremely hard on this with me.
Although I had to put some capital at risk, this turned out to be a dream deal. Thanks to everyone for their comments to this and other posts. Following the forums here now for almost 2 years have helped me get the confidence to try something that I hope will be the first of many.
Way to go! I love to hear more success story like yours.
Great job on your first rehab purchase. Just think everything through and do not be afriad to negociate on everything including labor.
Save where you can - EVERYWHERE.
Let us know how this project turns out.
I have yet to do my first rehab, but have been looking for my 3rd rental/fixer upper and hold.
Colin
Thanks for all the kind words and the advice. I did plan for about 3k in unexpected happenings. My realtor told me that if the house looks nice enough she would think we could list it for 72k and expect between 65 and 68k sales price. If thats the case and I stay on budget, I will feel good about turning more than my 10k estimated profit.
Any more advice is gladly welcome.