Advice - Deal Structure

[JP P.]

I need help coming coming up with a way to not tell the owner to sell the house.  Here are the particulars....

House retail market price:  66K (I think it may sell for 60K)

Repairs:  15K max

Owner mortgage left: 36,500     interest: 5.00%

Monthly payment: 826.00

Est Rent: 900  (minus PM fee: 90, minus water: 50)  ~760 profit

When working to make the deal I knew they had a monthly mortgage and had one year left (I assumed at worse 2 years.)  My first thought was to give a somewhat low-ball cash offer around 27K.  Cover the last year of mortgage and put some cash in the hand.  Add the 15K reno and I'm done all in.

Next offer was a full retail price with 15K down and payments over time.  Which would have covered last year of mortgage and then give them steady stream payments (~100 p/mo.)  

Knowing that they have 36K more left on the mortgage puts me out the park.  I was thinking of doing some kind of wrap, me giving some money to the owner and then taking over payments.  But with the mortgage payment being 800 it doesn't leave ANY room for profit.  I would like to do fair by the owner, but my profit margin comes first!!!! What are your thoughts on this:  I give 9K to the owner, 15K to repair, and make partial payments (~400) to the owners lender on their behalf.  This way it would give me a small profit.  Thoughts???

Not sure what way I can make this work.  Thanks in advance for your thoughts.

[Rex Celle]

@JP P. With a remaining mortgage balance of $36,500 at 5.00% and the owner’s original monthly payment schedule of $826.00, it looks like there is more than one year to go on this mortgage (i.e. more like 3-4 years left). The wrap deal seems a bit complicated. I would handle this property through a clean transaction — remove from the owner’s hands. Get a loan to purchase for $60k (or less), put down 25%, amortize over 15 to 20 years, put $15,000 in it for the initial repairs, and rent it out for $900 (or more) per month and have the tenants pay utilities separately. Run the numbers this way and make sure to include property tax, capital expenditures and repair estimates at 10%, vacancy factor at 5%, property insurance, etc. Readjust price and mortgage structure until you land at a positive net cash flow. Keep us posted.