Deal Or No Deal? What Would You Do?

15 Replies

Ok here's the story, I have a Super MOTIVATED homeowner who just lost his job, got a divorce and has no cash reserves saved up. He want's to walk away from his property but needs $15,000 to find a new place and pay off his car.

I offered to buy his home subject 2 and I'm trying to mash the numbers to make this work. Here's what we're working with, the remanding mortgage is $134,398 at 4.5% interest and PITI $919 the ARV for this property is $189,000. The property could rent for $1,350 a month but I'm leaning more towards selling it with owner financing. This property is also in great condition and needs 0 repairs as the owners actually renovated it themselves after they purchased it in 2011 as an REO.

What would you guys do? Also, what rates would you offer a private lender for the $15,000 for lets say 5 years.

Mike,

A distressed seller and it's in primo condition already!?!? This is a dream for me. I'd find a hard money lender and a partner (if you can't drop the $15,000 on him yourself) and then just flip the property. Or try and find a HM lender that lends 75% ARV and talk the seller down to $10,000 and flip it without a partner.

If you want to beat cap gains tax, flip it as a lease option for 12 months so it's considered a long term investment.

Get rich slow!

Mike,

$15K is too much to give upfront. I would give him $5K for the deed now (and for him to move out) and give him another $5K when you find a tenant/buyer. You can easily get a tenant/buyer or sell this on owner financing and get $10-$20K upfront. In this way, you have effectively no money down and you don't need a lender for $15K. What's his alternative? Right now...he is getting $0 cash and his house can get foreclosed on.

@Brian Banks , you can't get a HML on this deal even if your life depends on it. Usually HMLs lend at 70% LTV and they require you to have 10%-20% skin in the game. How do I know this? HMLs are brokers and they utilize money from private lenders like me.

Originally posted by Account Closed:
Mike,

$15K is too much to give upfront. I would give him $5K for the deed now (and for him to move out) and give him another $5K when you find a tenant/buyer. You can easily get a tenant/buyer or sell this on owner financing and get $10-$20K upfront. In this way, you have effectively no money down and you don't need a lender for $15K. What's his alternative? Right now...he is getting $0 cash and his house can get foreclosed on.

@Brian Banks , you can't get a HML on this deal even if your life depends on it. Usually HMLs lend at 70% LTV and they require you to have 10%-20% skin in the game. How do I know this? HMLs are brokers and they utilize money from private lenders like me.

Post of the Day! Everyone read this! Listen to Wendell's Podcast!

The last thing I should do is get in the middle of experienced wholesalers discussions (because I know little about that trade) but I could get HMLs allllllllllll dayyyyy long for this in Austin. Maybe it's a regional market thing for you guys I guess?

This is a 183% return on capital gains in my calculator.....

Originally posted by @Brian Banks :
The last thing I should do is get in the middle of experienced wholesalers discussions (because I know little about that trade) but I could get HMLs allllllllllll dayyyyy long for this in Austin. Maybe it's a regional market thing for you guys I guess?

This is a 183% return on capital gains in my calculator.....

You can't get a hard money loan on it because you can't put the lender in first lien position. On subject to, the existing lender has that position and won't subordinate it.

Originally posted by @Brian Banks :
The last thing I should do is get in the middle of experienced wholesalers discussions (because I know little about that trade) but I could get HMLs allllllllllll dayyyyy long for this in Austin. Maybe it's a regional market thing for you guys I guess?

This is a 183% return on capital gains in my calculator.....

It does look like a good deal, though.

Originally posted by @Jon Klaus : You can't get a hard money loan on it because you can't put the lender in first lien position. On subject to, the existing lender has that position and won't subordinate it.


Ah, I forget the order of operations there. Thanks Jon.

Originally posted by @Brian Banks :
Originally posted by @Jon Klaus: You can't get a hard money loan on it because you can't put the lender in first lien position. On subject to, the existing lender has that position and won't subordinate it.


Ah, I forget the order of operations there. Thanks Jon.

You might get a private money lender to do it. Friends or family.

Great input guys! I appreciate it, I'm meeting with several lenders this week to figure out what I'm going to do with this. The seller definetly needs 15k and he wouldn't budge at 10k.

Have you considered doing a personal loan with your bank? The rate may be the same or better than a hard money lender. What about a secured loan against a car of yours?

This post has been removed.

Scott a personal loan is out of the question.

I left a suggestion earlier, and it was evidently mistaken as an offer and either deleted or moved to Marketplace. I won't spend the time to rehash the particulars again, but my solution was a wraparound mortgage, if you can find a real estate attorney that can craft the docs and handle the closing. If I was the HML, I'd suggest/require something like a $150,000 wrap at 6.5% on a one year note with a 30 year amortization and would also negotiate an equity split of the net profits if you sold or minimum fees/points if you decided to refinance and take the HML out. Also, if you rent at the rate you stated, you'd still cash flow $250+/month. Good luck to you!

Account Closed Wendell I like your post but when you ask "what other options does he have" I think you overlooked the fact that he has a house that can be sold as move in ready and 50k in equity. His easy option is to sell the house through a realtor.

I would get this under contract quick. Find a partner.

@Mike,

In my opinion, @David Begley's suggestion is the way to go - Offer a wrap around mortgage  with a $20k down payment or something on those lines and you are winner - You may also get someone (Tenant/Buyer) to do a Rent with Option to purchase - Sell for 200k, Collect 15k - 20k Non Refundable Option Consideration, Rent for $1400, offer $200+/-  Rent-Credit for timely payments and you win here too.

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