Minor Rehab While Under Contract
Would you consider making minor rehab to a property while you are under contract with the seller to make it more attractive to a potential buyer. What if the seller pulls out, do you have any recourse to recover your costs?
i wouldn't. first, it's not yours at this point and changes could piss of the seller. also, anything you put in could be considered lost money. unless you have an area that is so hot that everyone is lined up to make you and offer - it may not be worth it.
so depending on what small changes you'd make to market it better, it won't affect the price nearly at all for cheap fixes on a distressed property - if that's the case. it's not worth taking down rotted/termited wood and building a new frame for a wall so it looks better. it also won't matter if you throw up a coat of paint over bumpy walls. hahaha. do you see what i mean? i'd just leave it alone.
I have asked lenders, owners, realtors, about this in the past. In every case I was told it was a no go. Nobody wants someone they don't really know, doing work that they aren't sure about, performed by people they don't know, on their property before they get a check in their hand. Supposedly a high percentage(seems like it was about 35%) of contracts don't go all the way.
From a legalstandpoint, absolutely NO!
A fellow contractor was approached by an investor about such deal,......the contractor spoke with his lawyer about same and he told him absolutley no.
There are too many liability issues involved for both parties.....especially the current owner.
[ Edited by NC_Yank on Date 03/01/2004 ]
Thanks for your responses and good insight. Here is my situation: this is my first rehab. The house is worth about $120K in as-is condition, not awful, but not real pretty. With minor rehab about $5K could be sold retail for $155K.
With a profit of $20K after costs of $5K rehab, about $8K to buy and hold it, and $3K closing on the sale.
But the out of pocket costs would be about $33K! Assuming $5K for rehab, $3K for 3 points for $100K 65% after rehab value hard money loan, $20K for downpayment, about $5K for 15% simple interest mortage and utilities for 3 months.
How can I get started with less money?
Should I maybe see if the owner will go for a lease option?
Would you do rehab while you hold a lease option?
Thanks for the comments..
[ Edited by jatkinson on Date 03/01/2004 ][ Edited by jatkinson on Date 03/01/2004 ]
I have a different story- I am purchashing three duplexes from one owner. Two bathrooms need a complete overhaul and one unit paint. I have asked the seller permission to paint the unit that needs it. He has no problem as it only adds value to his property. I am into that for paint and time, no biggie. The bathrooms needs about $1500 worth of work done. I am closing in 15 days. I let the owner know that I was rehabbing the bathroom on unit 1 which is unoccupied to get ready to rent. He doesn't mind because again it would just add value if my end didn't pan out. He accepted to keep my earnst money as a guarranty if the work wasn't done. This way I get my rental ready to rent on day one. The owner is happy either way. I would only do this if you had a really good feel about the owner and could take a loss of a few grand if things went south. It is a small gamble but sellers usually want to sell and often will work with you. Just my take..But excercise caution.