Dallas, TX · Member since 2013 · 311 posts · 94 votes
Heres the situation:
The house is owned free and clear
Seller is motivated but not desperate. It was listed on MLS and didn't sell.
ARV: $150k
Rehab est: 20k
My cash offer: 80k
I dont think they will accept the cash offer, so I want to offer a seller finance, just not quite sure what to offer so here is one scenario I came up with:
$135k with 5K down at 5% interest, amortized at 30 years with balloon due in 5 years.
Does that make sense? Does it sound reasonable? I am not totally familiar with seller financing so I may be way off here....feel free to tell me I'm crazy or whatever. If it's not an attractive offer, then what is?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Joe, sorry, quickest way to say this is just by saying, you have some great misconceptions about seller financing and setting values and structures. You're headed for problems. There are tons of threads on SF here on BP, start reading those posted in the past year or two, nothing older really. See an attorney! :)
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
12y
Joe,
Slow down. Why would you want to offer $135k when it's worth $150k after you dropped $20k in repair?
Before we can give you our inputs, how much was the house listed on the MLS for? How's the market since then? How much would this house rent for? I assume this will be a rental for you?
As an agent, I spend a lot of my time dealing with buyer and sellers.
Here are my feelings on the situation.
You need to find out what the sellers paid for the house before making an offer of 80k when they said they would be happy with 135k. If you see they paid $85k, then maybe a $90k would be more reasonable. This information can most likely be found on the property appraisers website.
Additionally, if you start with the 80k which i'm nearly confident will be declined and not countered (or countered with full price). And then go to $135k, that is a $55k swing.
Rockford, IL · Member since 2013 · 330 posts · 62 votes
12y
See if I this right.
You plan on offering $135K for a house that should be worth $150K if rehabbed to the tune of $20K. Then you expect to sell turn around and sell this to someone for $145K, so he fix up the place.
Let's see current seller gets $135K plus a little interest.
You get a negative $2K (estimate) = 145K (your selling price) - $135K (your buying price) - Closing cost - selling costs
The new owner gets a house worth $150K for $155K (a loss of $5K)
If the current can not sell it at $145K what makes you think you can?
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
12y
I am not an experienced wholesaler, but if you came at me with those 2 offers I would take the 135 owner finance. hands down. I wouldn't even think about the 80k cash unless I was absoloutly panicked to get some money. If I am reading it right I would get an extra 55k plus a small amount of interest to wait 5 years for my money. That's a bit over 10k a year. what would you do? or am I missing something?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
12y
Regardless of whether the numbers make sense, I think you're going to have some Safe Act issues, with seller financing to someone else, with a 4-5 year balloon.
Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes
12y
I've had a similar deal I negotiated. I havent done the math on your $135k price, but if they want cash down, offer 0% interest.
Offer the cash and your preferred financing plan at the same time, as "options". leaves lots of room for back and forth on finance terms. Believe it or not folks will take 0% if you can get them some money down. I've negotiated one of those myself. the max cash offer was 85k I think. final offer Was accepted: 110k at 0% 20 year amort, 7 year balloon, 10k down. Spent maybe 10k on rehab and got it rented for $1000 or so. Basically 23k or so out of pocket with plenty of cash flow and options before the balloon comes due.
I am looking at the government website right now but theres quite a bit to look through.....do you know what those restrictions would be, specifically?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Joe, no that is the wrong assumption, non-owner occupied to an owner occupied, you need to review the SAFE Act. If that's the deal on your property Shane, you're probably in violation with respect to the balloon, unless it was amortized at 14 years or so. There are principal pay downs required for a balloon note. :)
Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes
12y
hey Bill, ours was done last year (2012) while balloons were still (i think) legal. Title company had no issues with it.
Joe, any of those 3 exit strategies could work, assuming you could do the deal legally. However, rehab and lease is the most conservative, safe bet.
Lease without any rehab is very unlikely, and if you do, will likely cost you more down the road. There's almost always some deferred maintenance.
Regarding the buy with financing sell with financing plan, which is your third option...lots of folks do those but they're not my specialty. Just search WRAP owner financing and have fun reading all the pros and cons.
The house is not in need of any repairs....roof is new, gutters are new, foundation is repaired. It is however, VERY dated looking.
If I had enough $$ for the down payment I would borrow hard money and flip it myself, that is, if they accepted my cash offer. This would be a very easy flip for about 20K. BUT...I dont think they will go for the cash offer.
I guess the scenario that is more likely is to owner finance, then lease it??
Dallas, TX · Member since 2013 · 311 posts · 94 votes
12y
@Shane Woods I could actually give them about 5K down, if necessary.
No urgent incentive. They just want to get rid of the house. I think their daughter lived there but has since moved out. I am guessing they dont want to be landlords.