The seller is open to creative financing. He has two mortgages on this house that total $103k, he wants to pocket $16 after the deal. I had my realtor run an analysis and the ARV is $182k. He's had the mortgage for 15 years. The first 10 years he paid Interest Only. The next 5 he paid principle and interest. The 2 payments together are $1,200 per month.

My eyeball estimate is $25-$30k repairs.

The first mortgage is $20,119.23

Maturity Date – 02/2021

Interest Rate – 9.625%

The second Mortgage is $83,287.30

Maturity Date – 02/2036

Interest Rate – (until 03/2020) 4.5%

Work:

The bathrooms need to be upgraded and painted. Carpet needs to be removed from 3 rooms and on stairs to the second level. New flooring in living room, Upgrade on the kitchen will include new appliances, upgrade countertops, paint, and floor tiles. There's a Laundry room a master suite with a walk-in closet. There is a kitchen upstairs and stair asset to the upper level from the driveway. Possible inlaw suite or rental.  The entire house needs paint inside and out plus landscaping. Plumbing and roof in good condition. Two HVAC units.

My eyeball estimate is $25-$30k repairs. This is a wholesale deal. 

Need suggestions of how to write this up for an investor? As an investor that wants to buy this deal how would YOU approach this? Example: Pay the seller his $16k, pay off the 1st

and second mortgages to refinance, rehab it with 30K, pay a lower rate and interest after refi while you cashflow with a $1500 month renter?

How would you do it? 

Recap: 

Mortgage 1st and 2nd mortgage totaling $103k with Chase

Owner wants to pocket $16k

Estimated $25-30k rehab

Seller open to Owner finance and other strategies

My wholesale fee $10k

Realtor estimate: ARV $182K

B neighborhood

Vintages homes

1 mile from Cooper-Young District in Memphis

1 mile from University Of Memphis and the Liberty Bowl Football Stadium

2 miles from downtown Memphis and FedEx Forum

Originally posted by @Michael Williams :

The seller is open to creative financing. He has two mortgages on this house that total $103k, he wants to pocket $16 after the deal. I had my realtor run an analysis and the ARV is $182k. He's had the mortgage for 15 years. The first 10 years he paid Interest Only. The next 5 he paid principle and interest. The 2 payments together are $1,200 per month.

My eyeball estimate is $25-$30k repairs.

The first mortgage is $20,119.23

Maturity Date – 02/2021

Interest Rate – 9.625%

The second Mortgage is $83,287.30

Maturity Date – 02/2036

Interest Rate – (until 03/2020) 4.5%

Work:

The bathrooms need to be upgraded and painted. Carpet needs to be removed from 3 rooms and on stairs to the second level. New flooring in living room, Upgrade on the kitchen will include new appliances, upgrade countertops, paint, and floor tiles. There's a Laundry room a master suite with a walk-in closet. There is a kitchen upstairs and stair asset to the upper level from the driveway. Possible inlaw suite or rental.  The entire house needs paint inside and out plus landscaping. Plumbing and roof in good condition. Two HVAC units.

My eyeball estimate is $25-$30k repairs. This is a wholesale deal. 

Need suggestions of how to write this up for an investor? As an investor that wants to buy this deal how would YOU approach this? Example: Pay the seller his $16k, pay off the 1st

and second mortgages to refinance, rehab it with 30K, pay a lower rate and interest after refi while you cashflow with a $1500 month renter?

How would you do it? 

Recap: 

Mortgage 1st and 2nd mortgage totaling $103k with Chase

Owner wants to pocket $16k

Estimated $25-30k rehab

Seller open to Owner finance and other strategies

My wholesale fee $10k

Realtor estimate: ARV $182K

B neighborhood

Vintages homes

1 mile from Cooper-Young District in Memphis

1 mile from University Of Memphis and the Liberty Bowl Football Stadium

2 miles from downtown Memphis and FedEx Forum

Okay, I'm stuck. I would do this deal why?

@Michael Williams the numbers all look good and the way you detailed your analysis is good.

However the property doesn’t meet the 70% rule.

103k + 10k + 16k + 30k = 149k / 182k = 87%

As a subject to strategy and BRRRR it, cash in would be 46k plus holding costs about 20k for a year total cash in 66k (worse case scenario). To consider refinancing in about a year, we take the 103k + 66k = we are at 169k / 182k we are at over 90% LTV. Rent would have to be at least 1800 a month to make it work. If we sell we are only looking at 13k profit. Would that be a good deal for you? Would $13k be worth taking on a risk and flipping this house?

I may be looking at this at a crazy perspective it’s 430 am I just woke up. Please fact check me here.

Micheal, My only questions would be, what does the market say for rent? I turned down the same scenario we're the seller only wanted 8k to walk away with a 154k mortgage and ARV around $200k. It wasn't a rental market and homes weren't any recent sales. I found myself forcing the comps just because I saw that I could control this property for only 8k, but what then, I can't rent it, can't sell it if I put money into it I would hardly make a profit. Take a step back and look at the deal as if you had $60k in your pocket would you take it down?

@Michael Williams

Have you had a title report done? I'm always leery of deals where the seller wants to "net" a certain amount, rather than where the seller is acting off a firm asking price. I find in this situation there's often undisclosed liens, judgements, taxes etc. And even if there's not, the seller will have closing costs, such as title insurance, pro rata property taxes, transfer fees, etc. if the deal is the seller nets $16,000 these add to your property acquisition costs. Further, is the seller represented by a real estate broker? If so we have to add in a commission.

Let's say no broker, and closing costs amount to only $4,000. So now the acquisition price becomes $123,000, assuming no undisclosed liens. The cost of repairs, by your estimate, IF there are no repairs you missed, and IF your cost analysis is correct, adds another $30,000, bringing us to $153,000. A nice healthy $10,000 fee to yourself and the fix n flipper is in at $163,000. Money costs at 14% per annum, minimum 6 months rehab and sale, add $11,410 in interest/opportunity cost. So the investors now in for $174,410. Since your realtor quoted the RETAIL ARV at $182,000, it would probably take MLS exposure to obtain this price. Commission on $182,000 is $10,920. So now the investor's in for $185,330. To sell he'll have to pay for title policy, tax pro rata during holding period, insurance during holding period, and usual seller closing costs, minimum $5000. So investor has paid $190,000 and sold for $182,000.

So, we know this is not a fix n flip. What about a long term hold? Okay, same numbers. Investors in for $163,000. Rental income $1500. The big question, assuming your numbers are correct, is how much is property taxes and insurance on this property when it is assessed as NON HOMESTEAD? If the taxes and insurance are low to medium, the deal might be somewhat attractive to an investor. However, most buy and hold investors aren’t looking to do $30,000 worth of repairs. Especially to end up with a discount equal to what they could have negotiated on a property with no repairs necessary.

Unless you have a buyer lined up ready, willing and eager to do this deal (for some reason that escapes me), I’m afraid you don’t have a doable deal. However, you have learned just how difficult it is to find a situation that allows for a $10,000 wholesaling fee.

@Don Konipol Thank you for the complete breakdown and ALL cost required for a "Deal" like this. I am here to learn and I just got some high dollar schooling. 

I was going to pay for a title search after getting it under contract. 

I was going to suggest that he get paid his $16k over 3 years. He would have taken it because he is highly motivated but according to the responses here, it may still be a hard sell for a savvy investor. 

Thank you bigger pockets. 

@Ray A Delfi Thanks for the breakdown. The 70% rule at work. I will be passing on this one. 

I had a buyer contact me for something in the $120k+ range and less than $50k repair range. Although this looks like it fits that criteria all of the other parts kill that for this investor. 

@Mike M. Quick Question: 

So if the seller waives his $16k lump sum  and I reduce my fee to $5k, using your calculations that would put profits for buyer at $25k. If the rehab number is accurate and this was presented to you would you buy it then?