How can I structure a deal that the seller is very motivated but owes $128, arv $150k, and needs $5k to move into assisted living?
If you figure a 6% commission to sell at $150K you are left with $141K not including closing costs of a couple thousand approximately. If that leaves you $139K you can subtract the $5K that the seller needs and that leaves $134K. They owe $128K so that leaves $6K. The seller will have some closing costs that will eat away at the $6K. What was your plan for the property?
I was hoping to do a lease option on it.
Do your homework for your area. Find out what closing costs for buying sub-to or seller finance. Find out about selling with seller finance using your attorney. Know foreclosure time frames and costs if you sell with seller financing in case you need to take a property back.
Make sure the seller knows you're in it to make money that their loan has a due on sale clause and what that means for them if it gets called due if you buy sub-to or with seller finance with a wrap device. Get it in writing and have your attorney go over it with the seller.
Disclose to the buyer about the due on sale. And think about your outs if it does get called. Chances are slim that it will get called, but you have to plan for the worst. If you're not prepared for the worst, don't do the deal.
That said, however, I would get the purchase and sale agreement signed with the terms you and the seller agree to, give your consideration to your seller, then take it to your attorney. He'll tell you to adjust if needed and put together all the disclosures required by law.
For me to structure it, I need to know what the seller's PI (principal and interest) payment is. If his payments are pretty low to where if I sell with a payment structure (lease or seller finance) and get cash flow, I would consider this deal.
I would buy for what he owes either sub-to or seller finance with no down or balloon (long term balloon if the seller wants one). You need time to get a seller finance buyer qualified to get a loan and cash you both out). Sub-to is preferred but either serves my purpose. My payments will be equal to the seller's PI payment under both scenarios.
I would negotiate the $5000 moving money down as much as possible. I don't think I like the deal with $5k going to the seller. If he's motivated, he may be willing to accept less.
If I lease option it from him, I can't sell with seller financing which is my preferred out in this case because I'll be able to get more up front. No Realtor involved. Just my attorney which will involve costs.
My exit is seller finance to get more up front. If I lease option it out for $150k and get 3% for the option deposit, I only get $4500. Not much especially if I have to give my seller $5k.
If I sell with seller financing and if I can get 10% or $15,000 down with a 2 or 3 year balloon, I'll hopefully have enough to cover my closing costs and whatever cash I agreed to give the seller, and still have some money put aside for the what-if's. Foreclosure costs if you need to foreclose on your buyer and have enough money banked for several months of payments if a foreclosure takes that long in Indiana.
Talk to your attorney about putting together this type of deal after you've got an agreement signed. There may be specifics that you'll need to adjust and account for afterwards. And if the seller is motivated, they shouldn't kill the sale.
Regarding payment, I want to my payments from my buyer bigger than the PI payments going out to the seller's underlying loan and structure the buyer's note to me so the paydown is slower than the paydown of the seller's loan. Why? I get some cash flow and some equity build up until my buyer cashes me out. Again, check with your attorney on structuring it this way. Taxes and Insurance should be the responsibility of your buyer.
Then when my buyer buys, I get the difference between what's owed to me ($135k - any paydown) and what I owe to my seller ($128k - paydown).
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