Need Creative Strategies on High End Home

[KenReynolds]

I am currently negotiating an offer on a single family house that has a price tag of $750,000. Obviously, this is not your fixer upper.

I have purchased many properties in past but I`ve never gone into this price range for a single unit. The upside is that the seller is willing to take less than the value on the property tax roll. Based on comps, my guess is that he`s under-valued the property by about $100,000 based on current conditions. My plan would be to hold onto it until the market swings up and then cash in.

My concern in buying this property is that if I go with a conventional mortgage, I would tie up a lot of resources.

I`m not sure of the seller`s level of motivation (I think "Chicken Little" has gotten a hold of him) but I understand that he`s in the oil industry in Alberta and is concerned with the royalty review issue and wants to cash out before the market slips further down. The realtor says that the guy likes the house but just wants to get his money out. This perspective would be supported by the seller`s statements that he wants to remain living in the house as a renter after he sells.

So, I thought I`d get some thoughts on creative offers from you folks out there in REIN land. My realtor (a highly ethical guy who teaches realtors) suggested that I offer the seller his asking price and do the usual closing but, because the seller wants to live in the house, get him to pay a full year`s rent up front. Rent would have to be in excess of $4,000 per month to cover mortgage, taxes, etc.

If you have any other thoughts, ideas or suggestions on deal structuring, please let me know.

Thanks, Ken

 

[RedlineBrett]

QUOTE (KenReynolds @ Nov 15 2007, 10:26 AM) I am currently negotiating an offer on a single family house that has a price tag of $750,000. Obviously, this is not your fixer upper.

I have purchased many properties in past but I`ve never gone into this price range for a single unit. The upside is that the seller is willing to take less than the value on the property tax roll. Based on comps, my guess is that he`s under-valued the property by about $100,000 based on current conditions. My plan would be to hold onto it until the market swings up and then cash in.

My concern in buying this property is that if I go with a conventional mortgage, I would tie up a lot of resources.

I`m not sure of the seller`s level of motivation (I think "Chicken Little" has gotten a hold of him) but I understand that he`s in the oil industry in Alberta and is concerned with the royalty review issue and wants to cash out before the market slips further down. The realtor says that the guy likes the house but just wants to get his money out. This perspective would be supported by the seller`s statements that he wants to remain living in the house as a renter after he sells.

So, I thought I`d get some thoughts on creative offers from you folks out there in REIN land. My realtor (a highly ethical guy who teaches realtors) suggested that I offer the seller his asking price and do the usual closing but, because the seller wants to live in the house, get him to pay a full year`s rent up front. Rent would have to be in excess of $4,000 per month to cover mortgage, taxes, etc.

If you have any other thoughts, ideas or suggestions on deal structuring, please let me know.

Thanks, Ken

If your realtor can get you that rent up front that helps a lot... but you are still speculating that the market will improve enough for you to make a good return...

I am also a realtor and I can tell you that it is very tough to move high end product right now. I have one seven figure listing and while I`m getting showings and some lowball offers I just can`t get anyone to bite at the price my client needs. Buyers in that price range are not `motivated buyers` like they are at the lower end when they are trying to get out of renting... High end buyers are very particular and they will wait you out.

I have also sold four investment properties in the 575-640k range this year and all of them were tougher to move than I expected. There is an awful lot of competition in that segment.

Honestly, if you can hack a $750k purchase and are thinking investment wise and *I* was your agent I would convince you to buy two $375k properties that cash flow in fundamentally strong communities.

 

[Choda]

it seems like your vendor just wants out and is happy to cash in at $750k. considering his motivation, you may want to think about offering close to asking price and requesting a very long closing. perhaps May-June or even longer. This give you flexibility to potentially assign the contract or find the right buyer in the meantime.

you`re providing him peace of mind knowing he`s got a firm sale at the price he wants (although it`s not closing for a few months, his expectation is obviously prices will continue to drop. He`ll continue paying his mortgage, so cashflow wise, he`ll be no worst off.

in return, you`re asking for a longer closing so you have time to manuver. and you don`t have to worry about negative cashflow until you close. by then, hopefully, the market will be more favourable.

it`s not without risk. If the market doesn`t pick up as you expect by your closing date, you`ll may have to deal with negative cashflow and plan to have the capacity to carry that indefinitely.

i`ve been working on a similar situation myself in Edmonton and right now i`m just playing the waiting game with my vendor to get the terms i want.

cheers



QUOTE (KenReynolds @ Nov 15 2007, 10:26 AM) I am currently negotiating an offer on a single family house that has a price tag of $750,000. Obviously, this is not your fixer upper.

I have purchased many properties in past but I`ve never gone into this price range for a single unit. The upside is that the seller is willing to take less than the value on the property tax roll. Based on comps, my guess is that he`s under-valued the property by about $100,000 based on current conditions. My plan would be to hold onto it until the market swings up and then cash in.

My concern in buying this property is that if I go with a conventional mortgage, I would tie up a lot of resources.

I`m not sure of the seller`s level of motivation (I think "Chicken Little" has gotten a hold of him) but I understand that he`s in the oil industry in Alberta and is concerned with the royalty review issue and wants to cash out before the market slips further down. The realtor says that the guy likes the house but just wants to get his money out. This perspective would be supported by the seller`s statements that he wants to remain living in the house as a renter after he sells.

So, I thought I`d get some thoughts on creative offers from you folks out there in REIN land. My realtor (a highly ethical guy who teaches realtors) suggested that I offer the seller his asking price and do the usual closing but, because the seller wants to live in the house, get him to pay a full year`s rent up front. Rent would have to be in excess of $4,000 per month to cover mortgage, taxes, etc.

If you have any other thoughts, ideas or suggestions on deal structuring, please let me know.

Thanks, Ken

 

[invst4profit]

In my opinion holding a high end property with only one exit stratagy, and a speculative one at that, is destined to crash a burn. If this guy walks how long can you afford to make payments. You can`t even hope to add value to this property. This is a terrable deal, too much exposure.
Stand back and hope the market drops further causing him to panic. Then offer well below market value (30%) and if he is foolish enough to accept hope to resell in a reasonable period of time. Your best bet would be to find your buyer before you even make an offer.If your agent isn`t comfortable with this find one who is for this deal.
I don`t see any creative offer at 750000 that dosn`t have the potential of costing you your shirt.