Newbie Needs Help With First Deal! :)
Here are the details of the deal:
Woman is in beginning stages of foreclosure
The balance of her mortgage is $248,000
Husband recently died
5 BR, 1.1+ Bath, Nice House, Nice Neighborhood
House sits on a HUGE lot
Lot has R2 zoning
Village has approved property for two 3400 square feet homes
1 tax (PIN) number
Property is appraised at 650,000 and the comps back that up
I offered the homeowner 315,000
She verbally accepted and I am supposed to go sign the papers tomorrow
Here is what I am thinking:
Sign the contract and have the house close in roughly 2 months
Find a builder (already have a few interested) and assign the contract to them (before my closing) for the purchase price of 425,000-450,000 and make a nice buck for myself. A lot in this area is going for at least 250,000 so a builder would definitely be getting a deal.
My question:
I’ve been doing some research. Can I do a double closing with something like this? I do not have the money or the credit to purchase this house to do my own thing with it. This is why I am asking. I would love to be the one to develop this property, but it just isn’t feasible at this time. Can this property be sold at my closing to the builder that I am going to assign this property to, with no money, and me still collecting the difference (315,000 to seller and 450,000 from buyer), and with me never officially owning the property. Any ideas? Any suggestions? Forms to use? Any help would be greatly appreciated.
If I understand your bottom-line question: can you assign your purchase contract to someone else without you taking title, I believe you can if you include a right to assign provision in your purchase contract with the seller. You really ought to have a real estate atorney involved in this.
As for the scenario on the property, if the property has not yet been subdivided, the builder may not want to close with the seller until that is accomplished. I don't know how "bullish" builders are in your market area. If the builder wants to buy the property fully contingent, you're going to need more than a 60 day settlement. From the builders you've spoken to, have they told you how fast they would be willing to close with the seller? Also, are builders paying $250K for a lot or is that the retail price--the price being paid by end users?
Why not form a partnership with a homebuilder?
You would have to negotiate with the builder as to who takes what percentage of the purchase price but I bet you could actually make more money by doing this. I have heard of people doing this with apartment builders many times, and the builders usually make ~$60k/apartment.
You pay $315k, sell it to builder for $430, you make $115k, homebuilder sells home for $650 (maybe more since it is new?) and they make $220k. They are making more money on the deal than you are!! Either way, it is a good deal, but I say look into partnering up.
Also, I am a little unsure about exactly how to go about the following but I suggest looking in to it for yoursefl:
If you have the land, you can get 100% financing for a construction loan. You tack on __% (I think 4%) as a development fee, hire the homebuilder to build you 2 homes, and then YOU own the homes and will definately make more than $115k off that deal!\
Quote: Village has approved property for two 3400 square feet homes
Does this mean you tear down the existing home to build the two other homes? If so, then you have two lots and the price of demolition. So I do not understand the 650k.
How far back is the owner on payments? If yo need more time, you could offer to give her some money and bring her current. Then give her the rest when the property sells.
Brenda
Brenda,
I, too, figured a total of 2 homes would be allowed on the property--either
(a) the existing home on one lot and a new home on the other once the property were subdivided into 2 lots; or
(b) 2 new homes, each on its own lot once the property were subdivided and the existing home demolished
The $650K presumably is market value for the existing house on the oversized lot. But key questions here are what would the new home sell for on the lot and what's the value of the existing house on a smaller lot?