Hello BP friends, I have a motivated seller who is in pre-foreclosure status. The seller has an outstanding balance of $18k. Total outstanding principal balance is $194k at 6.87% IR. The house is located in Little Rock AR. w/1,477 sq ft/ 3bds/2ba. Based on the numbers, ARV - ($209K x .70) - 15k(light repairs) / $146,3k - 15k = $131,3 MAO. Is this a good wholesale deal? If not, what about a novation or other creative strategies might you suggest?
Hinton, WV · Member since 2026 · 1k+ posts · 373 votes
7mo
So let's break this down a bit more because I think there's more opportunity here than you're seeing.
First -- the wholesale math doesn't work, you're right. At $131k MAO there's basically zero spread once you factor in your assignment fee. Dead on arrival for a straight wholesale.
But here's what I'd be looking at:
Subject-To: This is where the real play is. She's 10 months behind, which means she's motivated as hell. If you take the property subject-to the existing mortgage, you're stepping into a $194k note at 6.87%. Your monthly P&I is probably around $1,275-$1,300. You cure the $18k arrears (negotiate with the lender -- they'll often take less or put it on a repayment plan rather than foreclose), and now you control a property worth $209k with $15k in repairs needed.
After repairs you're sitting on a house worth $209k that you got into for roughly $33k ($18k arrears + $15k rehab). Even if you turn around and sell it retail at $200k, you're paying off the $194k balance and walking with a nice check. Or you hold it, rent it out, and cash flow on that 6.87% note until rates come down and you refi.
Novation: This works too but it's more moving parts. You'd get the seller to sign a novation agreement giving you the right to market and sell the property. You list it at or near ARV, find a retail buyer, close the sale, pay off her mortgage, and pocket the difference. On a $209k ARV with $194k owed, your spread is thin though -- maybe $10-12k after closing costs. It works but it's a lot of effort for a skinny deal.
My honest take: Sub-to is the move here. The seller is drowning and just wants out. The 6.87% rate isn't amazing but it's not terrible either.
Cure the arrears, do the $15k in cosmetic work, then either flip it retail for a quick $30-40k profit or hold it as a rental. Little Rock rents are decent for that price point.
One thing though -- make sure you check Arkansas sub-to laws. Some states have gotten weird about due-on-sale enforcement lately. Talk to a local RE attorney before you pull the trigger.
And stop calling yourself a virgin lol. You clearly know your numbers. Most people can't even calculate MAO correctly. You just need to expand your exit strategy toolkit beyond wholesale.