I think I have a deal here. What do I offer?
Sumter, SC · Member since 2013 · 105 posts · 10 votes
Seller has a Property that her son is in and not paying rent ( so she has to pay all the bills). She even said that she would have to go back to work to pay her bills ( she is retired).
She is asking $150,000 ( that is what she think it is worth but not sure.) I did a quick look online and it looks like it is worth about $135,000. It does not need any repairs. I have not got the Comps for it yet.
She owes only $18,000 and pays about $1000 a month in PITI.
Do I have a deal here? What do I offer?
It is a nice house is a nice neighborhood
The motivation on the seller part is there - I'd rate this as a warm on a scale of cold/warm/hot. You need to move her more to hot. The main hook here, based on what you've shared, is she has to go back to work to pay these bills. She may want $150K but you need to wrap this up in a bow on how you are going to ELIMINATE THE NEED for her TO GO BACK TO WORK. Is there a way to do that? What would this property rent for? Could you take it over sub-2 and rent it out? There are several people on this forum that do lease options that may be able to help.
Has she considered refinancing and taking the cash out to lower her PITI?
Seller has a Property that her son is in and not paying rent ( so she has to pay all the bills). She even said that she would have to go back to work to pay her bills ( she is retired).
She is asking $150,000 ( that is what she think it is worth but not sure.) I did a quick look online and it looks like it is worth about $135,000. It does not need any repairs. I have not got the Comps for it yet.
She owes only $18,000 and pays about $1000 a month in PITI.
Do I have a deal here? What do I offer?
It is a nice house is a nice neighborhood
This is a LEAD, not a DEAL. She is at $150k and it is worth $135k, this is the opposite of a deal. If you can get her down to $85k or below you'd probably have a DEAL.
Wow what great points everyone has made!! If this was my potential deal and being a newbie honestly i would just wholesale the deal and keep it moving. If the numbers are right as far as comps/arv ect... Then theres a nice profit to just wholesale the deal and move on. U can take ur profits and build apon your REI buissiness by marketing more, partnering up with another investor, or even save more capital to purchase a solid buy and hold on your own, theres a boat load of possibilities out ther. But i wouldnt try to get rich off of one deal or try to complicate things with your 1st deal. Theres to mAny great deals out there to bank on one.
I hope all goes well in this deal for you and all your future endeavor.
@Chas Fabiano THE "remaining mortgage" has nothing to do with ARV, or the 70% calculation.
I stand corrected and humbled. Thanks
@Chas Fabiano THE "remaining mortgage" has nothing to do with ARV, or the 70% calculation.
I stand corrected and humbled. Thanks
You never explained Wayne. Please educate me. I still have a day job.
If I were approaching this deal I would take note of what the seller is telling you that is your gold.
She wants to get rid of the expenses of maintaining the property, taxes and providing a roof over her sons head. She is on a fixed income so that is her WHY. She does not have spare income and will need to return to the workforce to get it. Those are some pretty powerful motivators.
I'd say your strongest offer is one that will both pay off the existing $18k in debt or get rid of her obligation to pay it by doing a "subject to" or Lease Option. The other factor is she is really motivated by "INCOME". So if you offered to pay her a note with interest for the remainder of your purchase price that would really motivate her to accept your offer.
So the offer would depend on your ability to pay the 18k in my opinion.
Option 1:
Lets say you do have the ability to pay the 18k and run with that scenario based on the above mentioned assumptions.
Value = 135k
Lets say you negotiate a 40% discount for a quick sale.
Purchase price = $81,000
Down Payment = $18,000
Seller Financing = $63,000
Term - 30 yr
Rate = 4% (Negotiable)
Payments to Seller = $300.77 / Month or $3609.24 / Yr
That would be a decent increase to a fixed income. She would collect $108,277.20 over the life of the note.
Option 2:
Lets say you do not have the 18k on hand to do the deal.
Value = 135k
Negotiate 40% discount. Purchase with a "subject to" strategy.
Purchase price $81,000
Down Payment = $0
Seller Financing $81,000
Term - 30 yr
Rate - 4%
Payments to seller = $386.70 / Month or $4640.40 / Yr
You pay the note on the 18k Mortgage out of your cashflow. Seller would be in a second position with her note. You will also run the risk of the "due on sale" clause being triggered.
She would collect $139,212 over the life of the note. NOTE this is more than the $135k the property is worth but she would be collecting every penny and more over the term of the note.
With that being said those are 2 valid options and they can be played with or tweaked to provide the perfect deal.
For Example:
If she comes back and says the 18k has to be paid off and is not willing to risk her credit being damaged and trust you to pay the mortgage on time go with Option 1.
If she says she wants to increase her income by $500 per month and that $300 and change will not cut it. Adjust your financing a bit like so. We'll use Option 2 math its a big easier to explain.
Use a financial calculator to solve for the missing variable. Adjust either Term or Interest. We know:
Value - $81k
Term - ??
PMT - $500
Rate - 4%
Calculated Term now = 19.44 Years
We round this to 18 Years for good even time frame and recalculate for payment.
PMT = $526.66
More than what she is asking... It's good to over deliver, it makes your offer that much stronger.
New Terms:
Sales Price $81,000
Term 18 years
PMT $526.66 / Month or $6319.92 / Yr.
She would collect $113,758.56 over the life of the loan.
There are all sorts of ways you can cut this deal. You have to keep in mind that if your going to be holding the property then obviously whatever you can rent it for will dictate how much you can afford to pay her monthly out of that rent just as if it was a traditional mortgage.
Cheers,
Hopefully this will give you some creative ideas to try. I really thing the main motivating factor that will get you the deal is how much "INCOME" you can provide for her.
Another option may be Interest only payments.
Another option may be straight principal no interest.
Endless options.
first of "she thinks it worth 150" and you think its 135. Well where is she coming up with her number. Get a realtor to do a simple analysis and really get an idea. Second, as one other person mentioned, whats your game plan for dealing with the son? is the idea that you will buy it with the son in it? seems like you need to make whatever deal contingent on him getting OUT of the property. There is a high risk of him doing spiteful **** and trashing the place. I would seek to get the property contingent on him being gone and the property maintained in the condition that you have seen it in.
Many things need to be done as far as due diligence before this is a deal, right now it is a lead.
I would like to know how the monthly costs are running this lady $1000 monthly for PITI with only an $18k mortgage. I did not see anyone in this thread question these numbers which are very important. Taxes should be around $300-$325 monthly, interest on the loan should be pretty low and insurance should not be more than $200, so I am wondering where the $1000 comes from.
Next, what would this rent for? If this is not a wholesale deal exit, then the ARV has little to do with it, but good to know anyways so get that too.
Offering this lady an opportunity to take an expense and turn it into monthly income should be the way you play your angle. Next is the fact that you will take her headaches away. To do that, you need to know what the rent would be and then back out all the costs (taxes, insurance, management, repairs, maintenance, etc.) From there, what you have left is for debt service and your profits. Arrange the owner carried note to fit within that and you have a deal. Price is of less importance here then terms, rate, and structure.
This is a situation where if you are able to get it under contract/purchase-n-sale agreement.... you then need to invest a few bucks with a lawyer and see what the absolute legal situation is with evicting the son. They probably have no formal lease but it's implied by the fact that he's most likely been there a while. I don't know if you state is tenant-friendly but if so, that just makes it worse for you to get him out. Remember this is advice that will follow you onto many other deals but tie the property up first before paying for it - no sense putting the cart before the horse. You need to get to an agreement with Mom on price/terms.
Then put your head together with Mom and see what would motivate the son to leave. Even though he's a deadbeat loser, maybe a little $ from mom would motivate him to vacate. Or maybe a Playstation - who the heck knows. Whatever it is, he gets it at closing after you've inspected that the house is still standing and is broom clean, and like a prize, he must be present at closing to win.... while you all are there signing papers and swapping checks, you're having someone change all the locks.
No legal advice.
@Chas Fabiano just FYI her 18K that she owes on her mortgage comes out of her 69,500 cash offer!! You don't take that off the ARV, ARV stands for after repair value!
I used the 10K wholesale fee as an Example as i said, and you can set your wholesale fee according to your deal and price point of the property you are wholesaling!! This is where the integrity comes into play and knowing my sellers, knowing my buyers come into play. I love repeat business!! I don't want to screw people over either, so if i was to wholesale this particular deal and ask for a 30k wholesale fee this seller would get only 49,500 from me. Which in turn minus the 18k mortgage she still owes, now gives her 31,500.
I listen to my sellers, i am here to help them!!! Yes, I want to make money, but i make money by repeat business and word of mouth. My wholesale fees depend on the ARV of the properties.
I love your passion and knowledge. It was only put out there to learn. I am a newbie but learn very quickly. Like Zig said, "Help others get what they want in life and you will get want you want in life."
Thank you very much, I am glad i could help clarify that for you!! I do love Real Estate, since all 8 of my kids have all grown and moved out on their own, I had to find a new passion!!!! I love learning, and I learn something new everyday and apply it to my business!!
As I said in my earlier statements, as a Investor you must LISTEN to the needs of your sellers, buyers and colleagues to really know their situation what they need and THEN great deals will happen for both parties!!! Honesty and Integrity is very important to me and with that I get repeat business and word of mouth business!!!
Have a great day and if you ever need any advice, don't hesitate to ask and if I don't know I will help get the answer for you!!!
Sondra
If I were approaching this deal I would take note of what the seller is telling you that is your gold.
She wants to get rid of the expenses of maintaining the property, taxes and providing a roof over her sons head. She is on a fixed income so that is her WHY. She does not have spare income and will need to return to the workforce to get it. Those are some pretty powerful motivators.
I'd say your strongest offer is one that will both pay off the existing $18k in debt or get rid of her obligation to pay it by doing a "subject to" or Lease Option. The other factor is she is really motivated by "INCOME". So if you offered to pay her a note with interest for the remainder of your purchase price that would really motivate her to accept your offer.
So the offer would depend on your ability to pay the 18k in my opinion.
Option 1:
Lets say you do have the ability to pay the 18k and run with that scenario based on the above mentioned assumptions.
Value = 135k
Lets say you negotiate a 40% discount for a quick sale.
Purchase price = $81,000
Down Payment = $18,000
Seller Financing = $63,000
Term - 30 yr
Rate = 4% (Negotiable)
Payments to Seller = $300.77 / Month or $3609.24 / Yr
That would be a decent increase to a fixed income. She would collect $108,277.20 over the life of the note.
Option 2:
Lets say you do not have the 18k on hand to do the deal.
Value = 135k
Negotiate 40% discount. Purchase with a "subject to" strategy.
Purchase price $81,000
Down Payment = $0
Seller Financing $81,000
Term - 30 yr
Rate - 4%
Payments to seller = $386.70 / Month or $4640.40 / Yr
You pay the note on the 18k Mortgage out of your cashflow. Seller would be in a second position with her note. You will also run the risk of the "due on sale" clause being triggered.
She would collect $139,212 over the life of the note. NOTE this is more than the $135k the property is worth but she would be collecting every penny and more over the term of the note.
With that being said those are 2 valid options and they can be played with or tweaked to provide the perfect deal.
For Example:
If she comes back and says the 18k has to be paid off and is not willing to risk her credit being damaged and trust you to pay the mortgage on time go with Option 1.
If she says she wants to increase her income by $500 per month and that $300 and change will not cut it. Adjust your financing a bit like so. We'll use Option 2 math its a big easier to explain.
Use a financial calculator to solve for the missing variable. Adjust either Term or Interest. We know:
Value - $81k
Term - ??
PMT - $500
Rate - 4%
Calculated Term now = 19.44 Years
We round this to 18 Years for good even time frame and recalculate for payment.
PMT = $526.66
More than what she is asking... It's good to over deliver, it makes your offer that much stronger.
New Terms:
Sales Price $81,000
Term 18 years
PMT $526.66 / Month or $6319.92 / Yr.
She would collect $113,758.56 over the life of the loan.
There are all sorts of ways you can cut this deal. You have to keep in mind that if your going to be holding the property then obviously whatever you can rent it for will dictate how much you can afford to pay her monthly out of that rent just as if it was a traditional mortgage.
Cheers,
Hopefully this will give you some creative ideas to try. I really thing the main motivating factor that will get you the deal is how much "INCOME" you can provide for her.
Another option may be Interest only payments.
Another option may be straight principal no interest.
Endless options.
Great post Jeff!
Thank you very much, I am glad i could help clarify that for you!! I do love Real Estate, since all 8 of my kids have all grown and moved out on their own, I had to find a new passion!!!! I love learning, and I learn something new everyday and apply it to my business!!
As I said in my earlier statements, as a Investor you must LISTEN to the needs of your sellers, buyers and colleagues to really know their situation what they need and THEN great deals will happen for both parties!!! Honesty and Integrity is very important to me and with that I get repeat business and word of mouth business!!!
Have a great day and if you ever need any advice, don't hesitate to ask and if I don't know I will help get the answer for you!!!
Sondra
I don't look like u had 8 kids. My mom had 7 and I have 4 with 4 grandsons. I am sick and tired of the grind.