Arv 600k under contract for 400k needs no repairs

9 Replies

What's the best strategy to go about this. A house that's worth 600k arv is now under contract. We got it for 400k because he wants to pay the mortgage off and just walk away. Wholesaling wouldn't be a problem since it's in a desirable area. Property needs less than 5 grand in repairs. Instead of doing a subject to since he wants the money now. I was thinking of taking the mortgage over in my name or a llc or a trust. Put it on the mls. Hold it for a few months until I sell it. Another option I was thinking of is keep it for a year rent it out for a year lease, collect some cash flow then sell. What other strategies can I do to maximize this deal ? Thanks guys

"taking the mortgage over in my name" would be an Assumption, and unlikely for the existing lender to approve.  Some people use "taking over the mortgage" to describe a sub 2.

@Quentin S.  

Sub 2, then fix and put on the MLS. Offer him a little something out of escrow when it closes if needed to delay the mortgage payoff a few months. He wants that mortgage paid off so do it fast and move on. Should be a nice profit!

What about using transactional funding? Have them front the money.Then put it on the mls and sell? If I hold it for a few months I'll pay the mortgage. Just so nothing bad happens that he can take the house back. I don't think he would be opened to subject to because the mortgage would still be in his name .

Subject to would be great if you can get him to go for it.  Transactional Funders will need you to have a buyer under contract that does have non-refundable skin in the game.  If the numbers are correct 400/600k most local hard money lenders would probably do it if you need to get the mortgage paid off quickly.  Good luck, sounds like a great deal. 

720-291-9100

@J Scott 

In California you can have the title co. Run it so that what you paid for it won't show up in records. Then the appraiser can't use your low purchase price against you. On my part it's just one extra form and a signature.

Originally posted by @Mark Freeman:

@J Scott 

In California you can have the title co. Run it so that what you paid for it won't show up in records. Then the appraiser can't use your low purchase price against you. On my part it's just one extra form and a signature.

Sorry, I should have been more specific.  When I say "appraisal," I actually mean two things:

1.  The formal appraisal.  This is where the appraiser does his job and determines value based on comps.  If there's a way to keep the sale price out of the public records, you may not have to worry about this (though I've had appraisers ask me for my settlement statement from purchase when they find out it's been recently purchased).

2. Valuation of the property by the underwriter. This is done on FHA and conventional loans when the seller's hold period is less than 90 days (conventional) or less than 180 days (FHA). In the case of FHA, the underwriter is required (by HUD) to substantiate the increase in value over 120% of the seller's purchase price. In the case of conventional, the underwriter is required by FNMA to plug various numbers (seller's purchase price, rehab costs, resale price) into a formula to substantiate any increase in value. In both cases, the underwriter will need to know the seller's purchase price (typically by asking the seller for his settlement statement) and will likely want substantiation of the rehab costs as well. If you're unwilling to provide these, it nearly certain the loan won't close. And if the repairs don't substantiate the increase in value, that too will result in the loan not closing.

Maybe you'll get lucky and will get an underwriter who isn't familiar with the rules, but I'd suggest having a Plan B in case that doesn't work...

Originally posted by @Quentin S.:

What's the best strategy to go about this. A house that's worth 600k arv is now under contract. We got it for 400k because he wants to pay the mortgage off and just walk away. Wholesaling wouldn't be a problem since it's in a desirable area. Property needs less than 5 grand in repairs. Instead of doing a subject to since he wants the money now. I was thinking of taking the mortgage over in my name or a llc or a trust. Put it on the mls. Hold it for a few months until I sell it. Another option I was thinking of is keep it for a year rent it out for a year lease, collect some cash flow then sell. What other strategies can I do to maximize this deal ? Thanks guys

 From a tax stand point if you dont need the cash immediately you can take it sub2, lease it up for 1 year, sell, 1031, and roll all net proceeds into an investment that conforms to your goals whether its an appreciation play, a cash flow play or hybrid (CF & Equity).

If you sell in under one year yes you might net around 165k before tax. The problem is if you're consideried a "trader," you might owe 15.3% SE tax, Fed, and state (if applicable), and 3.8% medicare/obummer tax depending on your circumstances & income..

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453), and TN (#345453)
949-514-5106

if you can rent it and hold it for a year you will substantially reduce your tax liability on the property.

John Thedford, Real Estate Agent in FL (#BK3098153)
239-200-5600

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