Not sure if this would be a lease option deal.

16 Replies

Hi BP,

 So I meet with a seller tonight and I want to help them if I can.I am not 100% sure if this a lease option or just overpriced. If anyone here, after reading this could assist me further please PM me. If these numbers work for someone I would be willing to give this up for  finders fee and learning experience.

Rundown: Mother and son live in home but want to move soon, before June if possible. I think a lease option might be away for them to go. Mom wants a 115k condo to move into.

Property info that I have gathered:

Perry Hall Maryland 21236

SFH 1664 sf 5 bed / 3 full bath 1 bed is a converted dinning room that can / should be converted back.

They have a 180k  heloc @ 5%int. with a $400.00 month payment

rent would be 1850 - 2100  based on others in area

est. value as of now is 240k -260k    they asked for 290k     I might be able to get them down to 220 - 230  if I can show them that LO would pay the heloc and condo payments.    

Any other numbers needed I will give them if i have them.

@brian gibbons

sorry if i was not clear. I meant to say a price that would cover the current heloc payment and enough to cover a condo payment that the mother is looking to moving to. 

Why would they just not sell it if they only owe$180 and its worth $240 ?

I bet they have a first and the HELOC is a second at $400(?). There's something missing here.

I dont like to buy on a L/O, you dont have enough control. You can help her L/O it to someone else and keep the option money- LeGrand was teaching that in his ACTS course (I didn't take), Brian probably knows that one way better than me, but if you do a sandwich L/O (you lease option it from her, then lease option it out to someone else at higher numbers) there's just so much that can go wrong, I'm not a fan. The other big thing about L/O's to buy is you shouldn't be making repairs on houses you dont own. Ever. Might be a Sub2 deal, but I dont really see much motivation for that the way you describe things.

If it is indeed a HELOC at $180k you're right, renting it out would create some cash flow but you're going to have to figure out how to get her the new place and pay for it.

Also, I'm with Steven, why not just sell it?  If I'm understanding right, their motivation for selling outside of normal channels is just to move quickly, but they want $30-$40k more than its worth?  I pretty much hang up on people like that.  I'm joking, but honestly, if I dont see good motivation to sell at a discount, I'm moving on pretty quick.  

I'm guessing here, but it sounds like you've got to do some improvements to the SFH and probably cover her down pay on the new place, then pay her a monthly to cover the new payments while leaving the old loan in place on SFH assuming the bank will lend to her on the condo while the other loan is still there. Pretty significant cash outlay if your exit is to L/O the SFH out. I might come up with something different if I was talking to her, but from what we've got here, my thought is to tell her to call a realtor...

@Steven Picker ,@Darrell Shepherd

This is my first possible deal that came across my desk, new to investing. I am looking at helping them in any way if I can. This is not a property that I would personally keep but rather look for a buyer or other interested investor. I do have a couple of people who have contacted me for information, that is the reason for my question. I will let them decide if it works for them for a bird dog fee and being able to learn from them doing the actual deal. Again if I can help these folks in any way I want to not only for them but also for my personal experience and reputation.    

As for the current loan information, again being new, I did not ask all the needed questions first but they have been very honest when i do call and ask other questions. I will update the numbers here as I gather them.

You should work the numbers thru the rental calculator but you have to find out all the info 1st mortgage? 2nd mortgage? taxes?insurance? hoa?   market rent and use the lease amount as your loan payment then see what you have @Keith Belzner  

Use this form

Address __________________________________________ Date _________

Location / Cross Street _______________________________ Map Pg# _____

Seller _______________________ Ph# ____________ Alt. Ph# ___________

Listing Agent _________________ Ph# ____________ Alt. Ph# ___________

CONDITION

__Occupied / __Vacant _____ Bed/_____ Bath Construction _____________

A/C ___________ Elect. Amps ________ Garage _____ Year Built _______

Roof ____________________________________________________________

Exterior __________________________________________________________

Interior __________________________________________________________

Kitchen __________________________________________________________

Baths ___________________________________________________________

Plumbing ________________________________________________________

Appliances _______________________________________________________

Neighborhood ____________________________________________________

Other Work Needed ________________________________________________

________________________________________________________________

FINANCIALS

1st Lien Bal. $_________ 2nd lien Bal. $_________ In Foreclosure: __Yes/__No

Asking Price $_________ My Offer $_________ Resell Approx. $__________

Terms: __ Subject To, __ Agr. For Deed, __ Seller Fin., __ Lease Option, __ All Cash

Additional Notes __________________________________________________

________________________________________________________________

________________________________________________________________

CONTACT RECORD

Name Date Note

_________________________ _____________ ____________________

_________________________ _____________ ____________________

_________________________ _____________ ____________________

_________________________ _____________ ____________________

_________________________ _____________ ____________________

_________________________ _____________ ____________________

I would submit a Letter of Intent, and try to LO the property at $220k or less. In your LOI, you can easily offer cash for far less as well. I don't do owner-financed wraps with HELOCs in place. Too much risk od due on sale activation. If you can't even get the LO for $220K, this is all a mute point/question. There won't be enough to pay for the debt-service on this and their new condo. See if the rent from this will be enough to cover the pmts, maint, mgt, etc plus some for you. Know your debt service numbers. Even at $220k, this is a skinny deal at best. If you turned around and sold at full FMV with a realtor it will barely break even. Way to be out there looking at your first deal, @Keith Belzner !  Even if this doesn't work out, we learn a lot each time! Oh, and thanks for the form @Brian Gibbons .  I always feel better when you chime in, bud!

@Steve Vaughan

@Darrell Shepherd

You guys should coach newbies.

Case 1.  A Cash Deal to flip

That means its cheap enough to buy and resell at a profit, not this deal.

10% of appraisal costs to sell, to break even is .9 x 240 = 216K =  $0 profit

Case 2.  A Seller Financed Deal to flip

Is this right?  The OP is not clear on numbers of house

market rent on a rent to own = (PITI + HOA + HELOC)?

Im thinking not this deal.

No one in their right friggin mind is going to overpay for a condo.

Like I said, read the HOA, which prevents creative selling solutions like owner financing and lease w option and lease purchase. I hate HOAs.

Dont force the numbers.  NEXT!

BTW, think: What kind of residences do families of 3 kids 2 incomes want?

4B2B, fenced in yard, 2 car garage with internal access, quiet street, low crime, great schools, good stores and traffic infrastructure.  See 

www.NeighborhoodScout.com

Get that real estate product with an expired listing, offer a terms solution, like sub2, wrap or lease option assignment.

See terms deals training on this at

http://www.biggerpockets.com/blogs/3-reiskills-and...

@Keith Belzner this is a case of Ready Fire Aim, you may not ready to talk to sellers IMHO, I do appreciate the enthusiasm.

Here are questions to ask the seller to SEE IF THEY ARE MOTIVATED

https://www.dropbox.com/s/dpnlyz7cza8bwg3/Motivate...

I hope this helps.

Thank you @Brian Gibbons and @Steve Vaughan

Like they say you have to jump in at some point and do it. I am taking things slowly and still learning. That is one reason I did not even think about any type of contract yet. I have also been in touch with a few local seasoned investors about this property and getting their input which has been extremely helpful.

 Whatever the outcome I will take all that I have learned from this and put it towards the next deal.I was very surprised as to how this came to me,a simple post card tacked on the local grocery store community board.

That's the best way to look at this @Keith Belzner .  It is a win-win for quality experience and education! Keep surrounding yourselves with quality seasoned investors.  Not all of them are.  Thanks also for sharing your marketing method that got you in contact with this seller.  A postcard at your grocery store is a great idea!  @Brian Gibbons and I were chiming in on a post recently about most creative & cheap marketing methods.  Something like this was mentioned.  I'll try and find it and post the link.

Jumping in is fine.

If you are wanting to buy on terms, like sub2, lease options, wraps, etc, see

http://www.biggerpockets.com/blogs/3-reiskills-and...

and 

http://www.biggerpockets.com/forums/12/topics/1801...

Selling on lease 2 own, I recommend you get a RMLO 9reg mortgage loan originator) to underwrite the tenant buyer regardless. I know many feel it is overkill, but this is what I do, and what my REI Students do.

It protects you the REI and the Home Seller in case the Buyer gets an attorney (ambulance chaser) and sues you for not underwriting the Buyer as per the ATR (Ability to Repay Rules of Dodd Frank), enforced by the CFPB (see

http://search.yahoo.com/search?p=cfpb+atr+ability+...

Originally posted by @Keith Belzner :

Thank you @Brian Gibbons and @Steve Vaughan

Like they say you have to jump in at some point and do it. I am taking things slowly and still learning. That is one reason I did not even think about any type of contract yet. I have also been in touch with a few local seasoned investors about this property and getting their input which has been extremely helpful.

 Whatever the outcome I will take all that I have learned from this and put it towards the next deal.I was very surprised as to how this came to me,a simple post card tacked on the local grocery store community board.

 Keith, take a pic of your marketing and put it here!