Contract Blues - Posted by Ginger

Posted by Natalie-VA on June 14, 2006 at 12:29:14:

Ginger,

You have two scenarios here. Your buyer can’t get financed, so you really have no buyer.

You then try to sell to an investor who says there’s not enough of a spread. He’s right. You have to calculate the commissions, closing costs, etc. that the investor will incur in order to leave him enough of a spread.

You need to work this backwards. Put yourself into the investor’s shoes and work the numbers (I put them in my previous post). Then account for your assignment fee, and you will have the amount you can pay.

It’s somewhat more challenging to assign to a retail buyer. I assign mine to cash investors.

–Natalie

Contract Blues - Posted by Ginger

Posted by Ginger on June 08, 2006 at 16:12:56:

I have a contract that is driving me insane. I put a preforeclosure under contract from the sellers. Four days later I had a buyer and wrote it up. I thought WOW this is great! Well, now the buyer can’t seem to obtain financing. I found another investor to finance her, but the monthly payments will be too much for the buyer to handle. I have tried to flip this property but every investor states there is not enough room in it. I am thinking come on, so what if you make a few thousand, then move to the next deal. So, bottom line if this can’t close what happens? The title company has both contracts. Title co. going to come after me for the work they have done so far? Do I send in a termination of contract(s)? This has really got me in funk. To me this is a good deal. I feel like yeah I would love to make 10,000-100,000 on every deal to, but lets face it little deals are money too. Can anyone help?
Thanks

Re: Contract Blues - Posted by Max-Va

Posted by Max-Va on June 12, 2006 at 08:58:43:

Ginger,
It sounds like you are trying to wholesale a property that you paid too much for. Most rehabers that I know want to make 20K min for their efforts and risk. Did you use the ARV X 65% - repairs rule?
If you can’t wholesale this property, why not buy yourself. If not, release the contract so the sellers can try other options. It is not right to dash the sellers hopes and future on the fact you promised to do something you can not do. As far as title company fees pay them and move on. Think of it as a expensive lesson and one that you will not forget or repeat again.

Re: Contract Blues - Posted by Natalie-VA

Posted by Natalie-VA on June 12, 2006 at 07:58:04:

Ginger,

Can you close on this deal? If not, do everyone a favor and release your contract ASAP. If you can’t (or won’t) close on it, you’ve done a great disservice to the seller and to other legitimate investors who might be able to help the seller. And, yes, you should pay the title company for the work they have done.

–Natalie

Re: Contract Blues - Posted by Ginger

Posted by Ginger on June 12, 2006 at 11:17:37:

This is a 2002 brick 4/3. Nothing is to be done except move in. I put this under contract for 85,000. Sellers pay off is 75,000. App. 106,900. Every investor I have talked says there is not enough. That is what I don’t understand. I will be calling the sellers & buyer and send in termination of contract to the title company. Thanks for your response.

Re: Contract Blues - Posted by Max-Va

Posted by Max-Va on June 12, 2006 at 13:21:14:

Ginger
Here is the problem briefly from investor’s view
$106,900.oo sales price
$6,414 selling commission
$3,200 seller consessions
$3,200 Holding costs 90-120 days PITI
$?,??? your fee
$4,000 closing costs on Buying end
(There are other costs that I am not getting into)

This equalls about $90K - $85K contract price = $5K profit less your fee. This creates a push or even a loss for an investor. To wholesale this you should have had a maxium contract of less than $69,500. Retailing this to a owner occupant might be a possibility, if you have the time.
In a very hot market like most of the country had a couple years ago this might have been easier to do but the way todays market is buying enough below market is the key.

Re: Contract Blues - Posted by Natalie-VA

Posted by Natalie-VA on June 12, 2006 at 13:16:55:

Hi Ginger,

I wanted to run down some numbers to try and help you understand why the spread isn’t big enough here.

If I were an investor buying this house and the spread really was 22k, there isn’t room for much profit.

You say it doesn’t need any repairs, but I’ve never met a house that didn’t need anything (even newer ones). Anyway, let’s assume 0 repairs.

It’s going to cost someone at least 3k to close when they buy it. It will probably cost someone at least 4k to hold it for 4 months (interest, taxes, insurance, utilities). It will cost someone another 7k to sell it (real estate commissions and other closing fees). On top of that, they might have to pay 3k in closing costs for the new buyer. That leaves 5k for profit if everything went to plan.

The problem is that nothing ever goes to plan and even if it did, 5k in profit is not enough money to take on the risk of ownership. Those numbers don’t even include an assignment fee for you.

I hope this helps.

–Natalie

Re: Contract Blues - Posted by Ginger

Posted by Ginger on June 12, 2006 at 13:50:49:

Thanks for your responses. Why do you put in Realtor commissions? To wholesale to an investor there is none. To retail to an end buyer there is none either.
When the sellers called me in preforeclosure, I had some heart, there payoff is 75,000. I wrote the offer for 85,000. App value is 106,900. CAD is 117,000. Comps for area are between 80,000- 120,000. The buyer I have on it (that can’t get financed) was wrote for 100,000.00. So 15,000. I think is good. Maybe I am confused, I thought once you have a seller & buyer in a contract I am the middleman, they have the closing costs not me, I collect a finders fee at closing. But the way your numbers are, on the next seller call I get I would have to just take it in order for numbers to work like that. I don’t see anybody doing that, they at least need something in there pocket. Anyway, I am in a small city where I am by myself. The closest investors that I talk to are 50+ miles away. I think this is the biggest problem. They state they want out in other counties, but when you post what you have I get the same responses, not enough money. Therefore I am setting with properties under contract and not able to flip them. I am runnning ads and trying to retail them now. I have just sold one which I put under contract for 11,000.00 sold to another investor for a rental for 15,000.00 I feel like for my first deal to make 4,000.00 was pretty good. Believe me this 11,000.00 2/1 needs lots of work. I have just started investments, I know I have a lot to learn, but it has been very frustrating to say the least. I don’t have the money to “buy” every property I put under contract, this is supposed to be “no money down” investing. Thanks for your help.