I recently got a call from a seller who saw one of my bandit signs. After listening to him I understood that this was originally a project his grandson was going to do. The seller funded this project for the grandson. Now the grandson doesn’t have time because he is going to school out of town. The seller says $22,000 is owed on the property and he would be open to owner financing at 5% no money down. After talking a little more he also said he would fund the rehab on the project. My due diligence tells me ARV on this house will be $65-$70,000. I haven’t got into specifics on payments etc. but this sounds like a win-win deal. I did tell him that I would Pay him some sort of early payoff penalty once the rehab was finished so he would get a return on his investment he was still on board with this. Tell me, what are some things I should look for or ask about on this deal? Pretty new to the game and don’t want to go into something without knowing all the pros or cons. Thanks for the input I appreciate the help.
This is the kind of stuff that @Scott Hollister lives for. Maybe he can help?
@Tim Nash 5% is cheap money, depending on the deal of course. So lets look into it:
-You said you are new to the game, do you anyone else in the market to verify your ARV at 65-70k? This is the most important number in the deal.
-What are the rehab numbers? Are you doing the rehab yourself or hiring out the work? Do you access to contractors?
-Are you familiar with the market? Average days on market, seller concessions, type of finishes, type of buyers for your house, etc.
-Check with the town, make sure the seller isn't pulling a sheet over your head with back taxes, liens, or possibly not even being the owner.
-Do not do this deal without taking title. Have the seller hold back a 1st. Of course, consult with your attorney. Worth every penny.
-Once we figure out the above, then we can talk about the specifics on payments. For instance, I like to use other peoples cash when it comes to rehabs and purchase. So I may offer him a percentage higher if he will accept the interest payments at closing. This will leave you in a better cash position, especially when you are new to the game. But you HAVE to be confident in your numbers, do not take the deal unless you're absolutely positive in getting the deal done. Remember, Real Estate is a relationship business and your character is your most important asset.
Best of success!
Here is some additional information about the deal.
I have done some work on finding ARV, price per sq ft in the area, sale price for comps, similar sq ft, style, build dates(1920's) in the area. The average sale price is $63,000 with minimal renovation done to the homes. On the few that were updated, that number crept closer to $70,000.
I will be hiring out the work. I am in the process of getting quotes from at least 3 local contractors.
Yes, studied the market. Comps in the area are on the market an average of 3 months. Middle of the road as far as material cost on the rehab, considering the buyers it that area.
Will work with title co. To do title work making sure it’s clear. that should clear up any suprises.
Take title with seller on 1st position was my plan, unless I’m wrong.
Thanks for the input Scott!