A seller called me from a letter he got on the mail, He's an absentee owner with a 3/2 SFH and he's willing to sell me the house Subject to the existing loan. He pays a little bit over $600.00 monthly PITI and scrow, the house is rented until april 2015 for $800.00 and he wants the equity at closing. Equity is around $35K and owes 77K and some change.
However, I don't have the cash to pay the equity at closing and I'm looking to seller-finance that for 3 to 4 years. My questions is: Should I go ahead and sign a contract even though the cash flow is minimal and the renters will stay until april 2015? I'm not sure if I can afford the expenses until lease is over and I get a lease buyer next year.
I think you've answered your own question though. If its that tight that you aren't sure if you can afford the expenses during the next year, then you shouldn't do the deal.
If his current PITI is 600/month and you're going to get him to seller finance his 35k over 5 years, thats over 700 a month in payments just to pay back his 35k - even at a nominal interest rate. And its only getting 800 a month in rent?
I don't see the value here at all. You're better off not buying the house and saving your 700 a month in payments to build up enough for a down payment and then go buy yourself a deal in 5 years. At least then, you'll have a house that cash flows.
It looks to me that after the 5 years, you're going to end up with a house that maybe cash flows 100 or 150 a month (assuming rents go up some there).
To me, the only way this is an opportunity is if you can get creative on how you deal with this equity. You either need to get him to take a lot less or none at all. Or maybe get him to take interest only payments at 5% - enough so that you can at least break even while you hold thru 2015.
Bit I still don't get your exit. After 2015, you're going to lease option the house to someone else? For how much? This guy is charging you 100% retail right? So the only way you can possibly make it work is if you get a pretty good chunk of appreciation that occurs in the next year or so.
I just don't see how you're going to make money on this unless you can get him to give up that equity he's asking for......
Thanks @Mike H.
remind him what is his lowest price he would take from an agent, then remind to subtract the 6% realtor & then any seller concessions after they have an inpsector through & how much time they'll lose there(even if a buyer buys)
NO. This is not a good deal. But also, you wouldn't be owner financing it if you took it over subject to, you would just take over his payments of his existing mortgage. That $200/mth cash flow could get eaten up real quick too. One of the best perks about a Subject to is the back end profit, which for you there none because he wants his equity.
I would walk away and find something else.
Wait a minute, I assumed that you meant that he wanted his equity at closing when you sold the house for a higher price. Now that I read your post again, I think you mean when you take it over. I don't really consider that a closing, it's more like signing a lease. But if that is the case, then you should definitely forget about this deal.
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