Deal Analysis

14 Replies

Hey guys,

Today, my first very motivated seller came to my inbox! I'm hoping you guys can help me analyze the deal.

3 bed/2bath 1600 sq ft

Asking: $90k

Loan Balance: $90k

ARV: $95k

Currently Monthly Payments: ~$600 (said he had to look for exact amount)

Repairs: Minor/Cosmetic if any

Is this a good sub 2 deal? Any advice would be greatly appreciated! 

The monthly payment amount seems low if you're talking principal, interest, taxes and insurance.  It might work as a sub2 deal, depends on how much market rent will be, how much deferred maintenance there is and how desirable the neighborhood is.

With a 95k arv, in the off chance that the bank calls the loan due you will have to come up with cash to sell it quick if you don't have any better exit strategies.

Thanks for the response, @Tim Bishop  ! So after talking a little more with the seller, he's 3 months behind on payments, which are closer to ~$900 a month with taxes and insurance. 

I plan to wrap the loan and seller finance for a small down payment and higher interest rate.

What do you think? 

What's the sellers interest rate?  My issue with selling it on owner finance to a different end buyer is that if the loan is ever called due in the future the end buyer would have to be able to refinance quick to prevent a disaster.  If interest rates rise significantly banks might start calling these sub2 and wrapped deals due.  Most buyers who would owner finance cant get a regular loan and you cant count on them to be able to qualify later on.

I personally would only do a sub2 and then lease or sell it to a buyer with a traditional loan.  Do you know what the market rent for it would be?

@Tim Bishop  The seller said the current interest rate was "real low, 2 or 3 point something".  

I understand your concerns with seller financing. I'll post here market rental rates as soon as my realtor gets back to me! 

Remember you are becoming a steward for this guy's credit.  The number 1 thing I see go wrong with sub-2 deals is the buyer doesn't have enough liquidity to carry the note and the property gets foreclosed on.  You would walk away, but the seller will be pooched in the end.

So don't you dare buy this thing unless you can carry it for at least 6 months so you have adequate time to rent it or sell it.

Originally posted by @Marcus Louvier :

Thanks for the response, @Tim Bishop  ! So after talking a little more with the seller, he's 3 months behind on payments, which are closer to ~$900 a month with taxes and insurance. 

I plan to wrap the loan and seller finance for a small down payment and higher interest rate.

What do you think? 

 If you buy it in TX on sub2, pay the back payments, you are hard pressed to resell on a wrap to profit.

I try to get the seller to make up the back payments and I supply the debt relief by paying a payment every month to the seller's mortgage co.

And I would need a positive cash flow of at least 300 a month, rent or owner finance payment to me vs PITI.

Sub2s are complicated and you need a plan to refinance if the loan is called.  But if it is a choice property, I do love to buy on sub2.

It is imperative to have a good attorney.

@Tim Bishop  @John Blackman  @Brian Gibbons  thank you guys for the great advice! I do have enough funds to cover 6 months of payments, no worries! 

Is there another way to help this seller out? Another way to structure the deal? He's literally begging me to take the property off his hands! 

Any and all advice is welcomed! 

This is a no equity deal, I would do a lease option assignment and get some training from the K I N G of lease options in TX, @John Jackson who I trained in lease option assignments in 2001, and hes done only 450 lease option assignments or more.

Just dont make fun of how he looks or talks, hes a little goofy... (sic)

Seriously,  @Marcus Louvier  

solve the seller's problem but DO NOT GIVE THE SELLER ANY MONEY!

Go find a nice tenant buyer, and make a fast $2500 to $6000 on a lease option flip!

@Marcus Louvier Lease Options are very difficult and risky to do in the state of Texas. You'll definitely need to seek out legal council before going that route. There's not a lot of meat in this deal. So I'm not sure if the cost of that is worth it.

@Marcus Louvier    don't listen to @Brian Gibbons    I'm not that hideous... :)

He did get me into this stupid real estate thing though..so I should send him a bill for my mental treatment!

This is a net wash as far as equity..not sure how that happens here in the great state of Texas...you have someone wanting to sell for what is owed..which is what it's worth...wow...exciting...

This isn't a lease option as there is no equity...you can't SLO in TX since you don't have Fee Simple Title....if  you can rent for quite a bit more then you can take it sub-2....

Sorry...I meant this isn't  sub-2 lease option....you can lease option and as @Brian Gibbons   mentioned assign that for a quick $3500 or so......

@John Jackson  @Brian Gibbons  @Darien Gipson  

Thanks for the great advise! So if I'm understanding this correctly, the key to lease option assignments in Texas is finding a TB that can refi within 6 months? 

BTW, the market rental rates are about $1250 on average, his monthly payment is $900 + he's behind 3 months. 

@Marcus Louvier   Don't worry about the 6 months....that's a whole other thing...

I typically do 12 month LO's

do this...post the deal on here and I'll help you structure it.

Your biggest issue if the numbers work is getting the docs....which you can only get from me which I can't post about so not sure how to help you there....