Think I got a good Sub-to Deal

3 Replies

Hi,

I ran across a motivated seller on a four-family in an up-and-coming area.  He purchased for 100k in 04' and has put around 50k into it since then.  Says he owes little on it.  Asking $150k and I think there is lots of room for rents to come up, creating more value.  I believe it could sell for 200-220k if I got the rents up.  He doesn't want to mess with the tenants' rents because they are friends' family members.  

I would prefer to wholesale this place, however I am only going to get one shot at it...as he does not want to be bringing multiple people through.  Therefore, my plan is to purchase, increase the rents, and sell asap.  I don't have the cash to buy it for 150k.  What are my options with Subject to?  How might I structure this?  

All the best, 

Dan W. 

Best bet it to publish more of the details here (minus the address until you have some form of agreement in place with a potential buyer).  Without knowing anything else about it it is hard to give advice.

Presume you are looking for private money lenders, that would depend on how much down you have and how long you want to flip it I would think, or you could just flip it immediately to another investor as-is.

I'd probably offer to buy on a wrap for 14-16 months. Would have 12 months for seasoning & stabilization plus a few months for cushion. All provided $150 is a good value as it sits.

Most of my wraps and carries need 10% down. Will that be a problem for you, Dan?

More details on this property: 4-family stones throw from desirable park.  Most four families in this neighborhood are being converted to townhomes.  I don't see that happening as it has a weird layout.  Rents are currently about $400 per unit.  They should be $700+, assuming the layout isn't too wacky.  Building is in great shape/well maintained on exterior...I haven't seen inside yet.   I believe it would retail for 220k after value-add.  At that price, should be 11 Cap.  And should cash flow $400/ mo after loan payments and other expenses, including deferred maintenance.  

In preliminary talks with the owner, he wants to make sure I can come in around 150k before showing it.  Doesn't want to rattle the tenants.  Tells me he owes very little.  I know he purchased for 96k in 2004.  One option would be to either assume existing note or purchase sub2 and ask him for a second note/owner financed.  I could put 10% down.  I guess that would look something like this:

Purchase price 150k

down payment/ out of pocket: 15k

remaining balance: need to ask for those details.  Hypothetically, say 35k balance, 30 yr, 5% 

second note/ owner finance: 100k, ideally set up with, down payment, 0% initial interest for a month or two, then 5% interest only payments with balloon and minimum interest payout of say 3 mos. interest...

this would be ideal.  The question is : how do I structure this so that I can make my payments while adding values.  I know I need to find out how much time on the leases.  Trick would be to either stall payments on the second mortgage or make sure its structured to where I can quickly get the rents up (doing work if need be) and add value to sell quickly.  I have a grasp on this, however have never done an owner financed situation or sub 2 and don't want to scare this guy off.  Initially, I offered cash, not knowing that the layout and tenant situation make this building not ideal for a wholesale flip to investor, renovating into townhomes...

One other option is to get a conventional loan from the bank and try to eliminate pre-payment penalties so that I can sell quickly.  I could come up with 20% down payment if necessary.

A third option is to bring a close friend/buyer through with me and mark up to something like 175-185k in the AS-IS condition and let the end buyer do the value-add.  

The foreseeable problems with any of these 3 options, as opposed to purchasing with straight cash are:  1) the seller might not want two people coming through, bothering tenants 2) he might shudder at the sound of paperwork and complications from creative financing or institutional lending and back away entirely.  

I could possibly bring in a cash partner for exchange in net profits as a last resort.  

I greatly appreciate any help on this forum!

All the best, 

Dan

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