BiggerPockets

What's your exit strategy?

Jon

So, that sounds like a flip with no actual repairs. If you're doing a flip and using hard money while you're holding it, the 70% rule of thumb applies:

Max price = (70%*ARV) - repair costs

You know its worth less than $140K since that's what she has it listed for. You've not mentioned any repairs. So, that sets the max price at $98K. If you can sell for $140K, you stand to make about $14-21K.

If you're using conventional financing instead of hard money, you can save yourself about $5K. So, you could pay $5K more or take an additional profit.

If you pay $112K, your profit stands to be considerably less. If its really worth much less than $140K, you could lose money.

Jon

That would require a short sale. Its not going to be a great deal for you, otherwise. After all the closing costs, your margins are going to be pretty thin.

Jon

So, let me give you some actual numbers. You need to adjust them to fit your situation, but this will show you why I think this is too thin.

$112,000 purchase price
$3,360 purchase closing costs
$6,750 hard money points (5 points)
$10,125 hard money interest (15%, 6 months)
$4,000 holding costs (utilities, taxes, insurance, maintenance)
$135,235 total cash needed
$135,000 hard money loan amount

$140,000 selling price
$11,200 closing costs
$128,800 net after costs
-$6,200 net after paying off loan

Now if you have your own money, you can save almost $17,000 in hard money costs. If you get conventional financing, say 1 point and 7%, you save $11,000 in money costs. If you FSBO it successfully, you'll know 3%, $4,200 off the sales closing costs. Lot of if's there.

Now, you mentioned doing a lease option. Not sure that would work with your weak seller, but a creative technique like subject to where you assume her loan might. You'll have to pay to get caught up and continue to make the payments.

Jon