How do you do deals on a property that has no mortgage (Free & Clear) but the owner wants market value? This is close to the third property where I've been tempted to do the deal as a realtor because there's not much space between the Seller asking price and the Market Value. Any way to do a deal on a property with small %Equity
Seller asking price: $250k
Mortgage: $0 [Owned Free & Clear]
Repairs: Minimal ($5-10k) to put in pristine condition, Property is move-in ready
there is no deal. Why are you looking at it? The mortgage amount is irrelevant.
Find distressed sellers and properties.
What can I do to make it a deal?
Is the only way I can make it a deal if I offer $162k (70% ARV -($10k fee+$10k repairs)?
All you can do is make the offer and then move on. If you have the option to list it on the MLS, or refer it to an agent, then perhaps that sounds like the best option for this situation.
You asked for a creative solution... make a seller financed offer with minimal down payment (5%) and market rate interest (4%). Structure the terms as interest-only for three years and then a balloon payment.
For three years, rent-out the property. Because debt service is interest-only, your cash flow will be very good. Confirm the numbers, but I think you'll easily recoup the 5% down payment.
Hopefully the property will appreciate 5% per year for three years; if so, it will be worth $290k. At that point, refi to a conventional mortgage.
If your market doesn't appreciate in three years then you essentially have the opportunity to give the property back to the seller and walk away.
The point of this solution is to tie-up the property at a fixed price for a future real purchase. Try to structure the down payment and balloon payment with respect to rent so that you're outlay (risk) is minimized.
A more savvy seller is going to ask for a larger down payment.
@raj has a good suggestion. My thoughts are often skewed by non-hold solutions.
@Bob C. thanks. My answers are usually skewed to buy & hold. :) The OP wasn't actually clear with the goal of this property... we won't let that bother us with our answers! lol
The only reason I can't do seller financing is because the retiree will be moving to China! I'm a licensed realtor so putting it up on the MLS for $260k would net me about $5k (after broker share and tax) and get him about $240k after all fees etc. I just feel like there has to be a better way to do low equity deals as a wholesaler.
Don't waste your time on this property! You are in Texas and I happen to know there are some great deals flipping in Texas. Why would you ever want to buy a home for near market value? Don't try to put the square peg in the round hole. Make an offer that yields you the investment ROI you want and move on.
I wouldn't even be looking at a home that is in decent shape, listed at full price and needs very few repairs. This is not a deal, this is a home...for someone who wants to buy it and live in it a long time!
If you need help finding good deals, I would initially partner with other people who are flipping or doing the strategy you want to do. In Houston, I am guessing there are several real estate investment clubs etc..., and you always have the Bigger Pockets site to try and connect with people in your area.
I like the way @Raj Gandhi thinks and is guiding you about a possible different way of looking at it. However, you could definitely find a home in Houston with better numbers and more profit potential.
From a wholesaling perspective, you need to find situations with MORE meat on the bone, not less. If the property owner wants full FMV (or close to it), there is no margin for an investor. Which means there is even less a wholesaler can do with it.
You can sell it for them and earn a commission. You can tie it up, as mentioned above, and hope the situation changes during that time period. But you cant really wholesale it because there is no profit to entice an investor.
It isn't a "low equity" deal. The property is paid off, after all. Its a "low margin" deal. Which isn't a deal at all.
You need to find motivated sellers and/or distressed properties. This seems like an every-day scenario where the seller just needs to find a retail buyer.
Thanks @Robert G. I stand corrected: "Low margin deal" is really the best way to look at this property and I'll probably put it up for sale on the MLS.
Thanks @David Oldenburg there is alot of deals going on in the area and it would be better for me to just link up with 5 or 10 active investors so that I can get a feel of what's really going on. That would save me alot of headache and put some deals under my belt. one guy called from a bandit sign and wanted to link up. I think that's a great strategy and I'll incorporate it for my own business.
Is he open to owner financing? Could you do as @Raj Gandhi suggested but do a 30yr note for [email protected]% and then you owner finance to an end buyer for market value w/10-20% down at a higher interest rate? Say 7%?
I'm asking here - not suggesting. Please teach me.
I think I heard Wendell De Guzman do something like this.
@Mark Vejnar One strategy that can work, but it is not a guarantee, is to WRAP the home. You buy the home from the seller with a 5% to 10% down and get them to finance the home for a rate as low as possible. You then sell the home on a WRAP / AITD (although I don't know rules for this in your state), with a larger down and a higher rate to someone else.
It is not a guarantee, because you could have a hard time selling, even if you are offering financing. You also need to know your original deal with the seller will allow for you to do this.
I do know this strategy does work in some situations. I have never done it. However, a few years ago a friend of mine purchased a home with 10% down 5% seller-financed NOTE. He did very little work, new carpet and paint and sold it to someone else for $20,000 more than be bought it for, because he offered seller financing with a 20% down. He also charged a higher rate and made a "spread" there as well. I would say this is more of an advanced strategy, because you need to understand the rules and laws in your area and the contracts you are using. I would also recommend having some cash that you can use to make payments on your original NOTE, if your buyer should ever stop making payments to you, and you have to foreclose and get them out. It can be more complex foreclosing on someone when you have "wrapped" the home. For this reason, I would recommend a good attorney if you do not have experience.
A better way is to buy the home yourself, have the seller finance the home, and then sell the home to another buyer with a lease-option. This way they have an "interest" in the home, but not actual title. You can also structure the lease-option in your favor. I hope that helps!
@David Oldenburg @Mark Vejnar @Raj Gandhi I keep forgetting to mention he is retiring and moving to Asia! Owner will most likely not be interested in owner financing.
I tend to take a more conservative route which may explain why I have been doing this for 20+ years. Every deal doesn't have to be a home run, its ok to hit some singles and doubles. The home runs will come. Take the listing and make your $5k and start looking for the next one
@Tony Johnson I did catch the moving-to-Asia part. Sometimes it's nice to have foreign income - whether or not he chooses to domesticate it. We lived in the uk for a while and although the exchange rate was brutal we essentially lived off of dollars.
I wonder if he'll change his mind as his move gets closer. Something like what @David Oldenburg suggested could certainly add to his retirement - though the lump sum would also be quite nice.
@Tony Johnson if the seller isn't motivated you simply are not likely to get a good deal. It seems the seller is not motivated, so list the property and move on.
Just because there is equity does not mean there is a great deal if the seller is not motivated. Just because a seller has a good reason to be motivated, that doesn't mean that they are.
This is a great situation for you! Put the place on the market as a Realtor.
While you are setting up the listing, make sure to put a bug in your client's ear about "alternative" financing. Make up a list of exit strategies with "cash sale" at the top. Follow that with "finance sale" and so on down the list.
There isn't a ton of difference between wholesaling and being a realtor. The nice part about being a realtor is the commission on deals like this one. PLUS you get to follow the deal at every step. If $250k is a good price, your 5k+ commission should be coming to you shortly. If $250k doesn't work, you will also see that coming down the pipe. @Raj Gandhi 's suggestion comes into play at that point.
Get it list, get it sold, get paid!!
Thanks Greg H. 's path.
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