Would You Do This Seller Finance Deal?

Question

I'd like to see if this deal would be a grab or a pass why or why not.

A seller is looking at selling his home that has an average comps of 198k and rents of 1500 with in the subdivision. He has a renter that is on a month to month paying 1500 but the place needs about 15k worth of work to sell at top value or even to rent at top value. I mentioned that I would like to onwer finance the home from him for 3 years but he owes about 103k on the property and has a mortgage of about 700 per month not including taxes or insurance. So I can purchase the home at:

203000 in 3 years or refi

13500 downpayment

1250 mortgage PITI

7500 doing minimum repairs

2000 closing

4300 Taxes

I hope that is enough information to give about the deal. The home is in Pflugerville, Texas right outside of Austin. So I am interested in feedback.

JD Martin · Answer

Maybe so but based on your own numbers you're going to be buying that appreciation.

$1500 rent - $1250 PITI - $90 vac - $90 maint = $70/mo cash flow, self-managing and putting away nothing for capital expenses. And you're buying at an inflated price despite the fact that you say it needs $15k in rehab.

Andre Key · Answer

Steve,

Your right it won't be a SF but more of a Subject2 I would use a third party company to collect and pay mortgage a long time ago I used this company called loankin to deposit rent pay mortgage automatically then pay out the difference.

Andre Key · Answer

Aaron,

Great perspective there is no current listing price but if I let my partner list it the client was hoping to sell for 190 which is under retail but not low enough based on repairs.

Steve Vaughan · Answer

The numbers don't look that great to me, either. And I'm not at all a 70% guy.

The big risk, in addition to paying too much, is the financing itself. First, it has to be a wrap. How will you ensure the underlying mortgage is being paid?

If you do a LC, CFD or AITD you won't even own it until you pay it off. What type of SF are you going to do @Andre Key?

Aaron Gordy · Answer

@Andre Key

I don't mind owner finance deals at all and have been on both sides of the equation. As long as the closing is with an attorney that has read over all the docs to make sure that its legit and protects your interests and for the seller for that matter. So, the attorney would be an intermediary. The title companies are also good for closings but when it comes to tricky situations I prefer an attorney.

Another thing that stands out to me is the renter. He/she/they are in a month to month lease. I would try to structure the deal so that the tenant signs a long term lease 12-24 months so that you don't even have to worry about the repairs for a few years. If Pflugerville keeps appreciating at a 7.3% clip (as reported by abor stats for October) then in a few years you can refinance if the terms are okay. I haven't done the reverse math yet so I don't know what the interest rates are that he/she/they are quoting you.

For me its about rate of return. If you can get nice cash flow and appreciation then you will be good to go. Having a renter in place is a good thing. I would find out more about the renter's position. It seems that you will be getting a nice cash on cash rate of return given that the total rent generated for a year is $18,000. The piti is 15,000$. $3000 on $13,500 is not bad at 22%. That is, if the maintenance is zero but probably unlikely.

Also, have you ran the actual comps to see if you are getting a good deal on the purchase price?

Is $203k the current listing price? If so then why purchase for more than the actual comps? It doesn't make sense, in my mind.

I would get them to pay the closing costs as they are sitting on a ton of equity.

I hope that is helpful.

Aaron

Andre Key · Answer

In Austin that house may sell 160k or more retail in current condition so 150k would only work if he was in Jeapordy of losing it. He doesnt want to go through the hassle of putting anymore money in it and being a landlord is weighing on him.

Andre Key · Answer

Jd,

You make a good point. The only value I saw was in the possible appreciation as well. The guys is behind the 8 ball so If I waited it out he may be willing to give me something more favorable.

Andre Key · Answer

Todd,

I have Comps and they are on average about 188k but I have seem many of the top homes in that subdivision sell for 198,500 about 2 months ago and they arent heavily rehabbed. How would I fine the average ROI for an area?

Would You Do This Seller Finance Deal?

Would You Do This Seller Finance Deal?

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