CASE STUDY A GUT TED DEAL
A GUTTED DEAL A gutted, post-war bungalow was slated for rehab into a 2-story, lake-access jewel in a growing Detroit exurb—until the lender walked away.
T
he borrower’s son, a licensed real estate agent,
found a gutted, post-war bungalow languishing on the MLS. He knew it could be a perfect first
rehab for his mom, “Helga” (not her real name).
Her best friend was an experienced contractor, and her family owned a couple of lumberyards in the area.
Here was a home whose only redeeming feature was the land it sat on. To command top dollar, they would need to expand the ground level, add a second level and rebuild the detached garage using near-luxury fixtures. Once the rehab was complete, the overall square footage would increase from 960 to 1,800. The deal was structured as a 50-50 split between the borrower and her contractor friend. Her son would receive the commission for both the purchase and the sale. The contractor would perform
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PRIVATE LENDER
all the work at cost, with no added fee, and was tight with the planning commission. And, due to Helga’s lumberyard connection, many materials were going to cost wholesale, not retail. Their margins were fat, even with the cost of the loan. The exit strategy was pretty simple: fix, flip, get paid. The margin was about double what a “civilian” would have made.
SUMMARY OF OPPORTUNITY Green Block was poised to fund 75 percent of the purchase and 75 percent of the rehab for an ambitious new investor. A conservative comp of $280,000, nearly triple the purchase price, was attractive to all the involved parties. The underwriting was strong, the title clean, the mortgage and note written. Everything looked great, until…