How will you finance this deal ?

Question

Hi All,

I have a property that needs some renovation. He is motivated since offering 0$ down or 0% interest. The owner has one goal, cash out of the property, and is offering seller financing. He can also guide me on the renovation ( this will be my first time doing it ). I learned about seller financing and was okay to offer a 30-year loan, a 5-year balloon, and 10k down. He sells the property for 150k. But here is the trick, the owner wants to cash out after 6 months. He is open to any type of offer if I can assure those points:

1. I will renovate the property ( the renovation will cost between 30-40k )

2. I will refinance in 6 months and cash him out.

Once renovated, the property can be valued at 170k-180k ( He mentioned 200k, but I'm not confident in that ). The renovation will convert a row single family home into 3 family home ( the layout is already there ):

- the first flow will be 1 bed, 1 bath

- the second floor will be 2b, 1bath

- the basement.

If those 3 rents, I can easily have $1800-$2000 in gross rent per month.

So any creative financial idea I can propose to him?

PS: He suggested me an FHA 203k, but I'm not open to that because I want to reserve my FHA loan to buy my primary residence home by the end of the year. that's why I'm interested in this deal, well done, it will not impact my credit score.

So how will you go about this deal? I will reply to any questions and update the post accordingly.

Thanks.

Tom S. · Answer

@Noyessie Hubert  Personally, I don't think there's any money to be made in this deal but let me know if I'm missing anything.

Looking at your numbers:

- Best case scenario, $150k purchase, $30k rehab, $180k value.  After closing costs and any other fees, you're losing money.

- Worst case scenario, $150k purchase, $40k rehab (or more), $170k value, you're losing a lot of money.

IMO, I would pass and look for better deals.

Patrice Penda · Answer

I agree with @Tom S. Not a great deal in my opinion for those exact reasons

Noyessie Hubert · Answer

I move away from it. Thanks all.

Andrew Postell · Answer

@Noyessie Hubert this is a very standard structure for most investment property scenarios.  Hard Money will usually "balloon" (that's where the mortgage is due in full) after 6 months.  So, what the seller is suggesting is pretty normal.  Your responsibility is to get "PreQualified" to refinance out of that loan.  Getting prequalified is free to do and is normally a "soft" credit check...so there's no downside to getting prequalified.  Once you are prequalified, that will tell you how much you need to come out of pocket, what your permanent loan will be, and other things that will be important to the deal.  So, go get prequalified and you'll get what you need.

Hope all of that makes sense.  Thanks!

How will you finance this deal ?

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