PSA Negotiation - Off Market Covered Land Play
Hey WSO-
I know a family with an off market piece of land with a handful of apartments currently in place. I can negotiate a $6mm purchase price, but can easily flip this land to a local developer for $7-9mm. During PSA negotiations, how much earnest money would you offer, and what timeline to close? Is it market for earnest money to go hard day 1 on these deals?
Insight on market PSA terms would be much appreciated, I'm looking to insulate my downside as much as possible in the event that I cant flip the contract.
If the numbers are true then this sounds like a very lucrative opportunity but also incredibly risky should things fall through or you can't find a buyer in time. For every deal I've ever done, I've only ever put down 5% at PSA. 5% is pretty standard in my experience and less than that may signal that you are not serious; however, given the dollar amount, maybe 3% could work. As for closing timeline, generally I do 60 days from PSA, but in your situation you will want as much time as possible. From a developer's perspective, they will likely need a construction loan, which if they have banking relationships in place already should take them 30-45 days to close, but let's say 60 just in case, then you need time to actually market the property, so that depends on how long you think it will take you to lock down a buyer. If it's that good of a deal then could be as little as a couple days to a week to lock down a buyer, but to be safe I'd say at least 1-2 months. So all in all you're looking at 90-120 days at least, which is a bit long but not unreasonable. The key though is to not reveal your cards to either side. If the seller catches wind that you are trying to flip, then they will think their property is worth more and also you should have some legitimate reasons as to why only 3% down and 4 months to close or else they may not think you are serious. As for the developer you are trying to sell to, since you are flipping the PSA, they will ultimately find out, which will give them leverage over you if they try to play games or re-trade the price close to closing if they know that you do not have the ability to close, so make sure you maintain the cover that you have no issues closing this on your own. In the meantime, you may also want to seek investors just in case you have to close or unless you are okay losing your deposit
Tbh if I were in your shoes, I would not pursue. I understand it looks like a great opportunity and a lot of money to be made, but might be biting off way more than you can chew.
This is very helpful- My other option is to negotiate a JV with the current ownership group. Splitting sale proceeds 90%/10% for any sale above 6mm if I personally fund costs associated with proving out feasibility. The owners have been in the deal for 50 years and don't seem to care about doing any leg work.
let me ask you this. if they owned for 50 years, what's the rush to close. Who cares what's market, negotiate what you need, especially since this is, you know, off market. I have two deals I'm hard on now that have 12 and 15 month closing periods respectively. it is market? no. but its what we negotiated and it worked for both parties. If you don't have the capital to close on this yourself in a downside scenario and they are open to that kind of JV then that sounds like the way to go tbh.
Agreed with Broseph that if you can negotiate everything you need, that would be ideal. My advice in my original comment was looking at bare minimum. But if they are open to a partnership, then I think that would be best. Obviously less upside, but also much less downsize as well
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