Need help to construct a House Deal

5 Replies

Hi All, 

     Need a little help on constructing a creative deal.  A Single family house with 3 br, 1 ba, price range $310k - $350. Owner needs to sell quick to move out to Florida, the house has a tenant who renting a room who's bit hostile toward the home owner who also lives in the same house, they're going thru court to get rid of this tenant as we speak. 

Owner bought the house for $300k  3 yrs ago, finance ( bit over price according to 3 yrs ago market) 

I know the info isnt detail, what kind of info do I need in order to make decision if this deal make sense ... or not.

What are my options if I want to do a creative deal on this? what do you guys think?  Seller financing? Lease Option?    

thank you in advance

If they have a mortgage it probably has DOS clause. I would be careful about taking it subject to. Also, where is the value to you? You can't pay market and make any money.

Originally posted by @John Thedford :

If they have a mortgage it probably has DOS clause. I would be careful about taking it subject to. Also, where is the value to you? You can't pay market and make any money.

Thanks for replying,  that's why i'm here in biggerpockets to know what are my options that could work for me and the seller in a win-win scenario. I'm pretty sure they still have mortgage on the house they bought 3 yrs ago so seller financing is a bit tough.      

@Franky Juwana

Before looking at creative solutions for taking control of the problem, you need to establish first it makes sense financially.

Is the price the seller is willing to accept a good price.

Here it is an exercise of looking at the income they property will bring in and deduct all the expenses you will incur or are likely to incur.

If you establish you have some positive cashflows then it makes sense.

Now to be creative, you need to know what your constraints are? If the seller needs the cash at the end of the sale because he’ll be putting towards another property, then your options are limited.

Maybe he doesn’t need the money upfront.

What are your constraints? If you can put up all of the money, then you want to find a lender.

If you won’t qualify for a loan, you won’t to see if the lender will accept to finance you or will accept a lease option.

The point is that you need to know what the constraints are on both sides. You need to know what you want and what the seller want to.

Hope it helps.

Its real tough to get 300k houses to cash flow as rentals. So that right there might limit your deal type to being a flip. Then you have to ask how you can make money as a flip if they're selling for 300k and its worth 300k.

I don't know that either option is going to work here so I would say there probably isn't a deal to be had.

As an investor you really need two things:

1) Discount on the purchase. You don't want to be paying retail. You make your money when you buy so you need to get that discount. Most investors suggest that the purchase plus the rehab come in at 65 to 70% of the ARV (after repair value). There are times where 75% works as well. But I wouldn't go too much higher than that. So if the house would be worth 300k after repairs, then you would want to get it 225k or less including rehab or its not reall deal. Now maybe you can stretch to 240k (80%) but that would be the absolute max I'd recommend. Its not investing if you're paying retail.

2) Cash flow as a rental. Once you put a mortgage on a house, how much will it cash flow. Rent minus PITI (Mortgage - principal and interest, taxes and insurance) gets you gross rental profit. Now subtract esimated repairs, vacancy, etc, and that gets you your net rental profit. That number should be positive.

There is no exact formula for what the discount and net rental profits should be. Personally, my area's sweet spot is with 150k to 160k houses that I can get all in at 110k so I have very little out of pocket (5k to 10k tops) and can have a gross profit of 400/mo or more. Thats what I want to see.

That means I'm capturing about 40k to 50k in equity on every deal and my net rental profit is roughly 150 to 200/mo.

But there are times when you'll go outside of that box. I've had houses where my gross profit is 250/mo so I'm basically not making anything. But my equity capture was over 100k and my principal paydown was 400/mo.  Thats worth cheating on the gross profit target. 

You have to weigh everything - equity capture, rental profits, principal paydown, potential appreciation (some are better than others), and see whether the combination of those is worth a deal or not.

As for this one. The fact that they want 300k and its worth 300k is a non starter for me.  Not unless they were going to seller finance it for 2% or something crazy. I just don't see many 300k houses that can cash flow and at 300k you're getting zero equity......

hi @Mike H. thanks for your input, 

300k is the purchase price they bought 3 yrs ago, now they probably want more.  I asked this morning, how much they're looking to sell, she said around 359k, which I know top of my head with that size of house, they would be lucky getting 330k, plus there's an illegal bathroom with no c/o that they need to remove before selling. 

Just like @Patrice Penda said, I gotta get more info so I'll know my constraints in order to structure any type of deals.  

I just dont want to say no without exploring what I could do for a win-win deal. 

I'll update once I know details thanks again,

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