Subject 2 wholesale deal

7 Replies

seattle home

Value approx 245

Existing Mortgage 208k

PITI 1500

Seller wants 60k down

No balloon time. Life of loan.

What kind of investor would be most interested in this? 

Good deal as is or what would need to change?

Wholesaler wants 15k

Property could rent for about 1800 with some update and a 1/2 bath put in. Which would also increase the market value. 

There isn't enough information here to make an informed decision.  

What condition is the property, class A, B, C? SFR, condo, etc.? General location or the community? Is the seller trying to sell the property with assumable loan? How much does the seller want? HOA? Rental restrictions? Existing tenants?

Another point that's not clear. "Seller wants $60k down." Is the seller going to be carrying the mortgage? Lenders are the ones who require amount of down payment. If it's cash sale only, then "seller wants $60k down" is a mute point. If seller financing, you'll want to check current mortgage contract for due on sale clause. If it's a REO (owned by a lender), then there wouldn't be an existing mortgage. Junior position liens are usually wiped out in REO unless there is subordination going on behind the scenes.

In a buy and hold rental deal, the numbers have to cash flow positive for investors to get excited. If it's an appreciation play, then the exit strategy has to make sense factoring ins 10% real estate transaction cost plus profit. Meaning 6% buyer/seller agent commission plus 4% misc tax, transaction cost. Plus the rent has to breakeven with PITI factoring in vacancy rate.

My gut feeling is that the information is conflicting and I would not invest if this is all the info that's available.  :-)

sfr. Beacon hill area. Seller will sell subject to existing loan with no cash over the piti.

Home needs updating but is not trashed. Owner lives in property.  

Owner needs the cash to move out if state.  No hoa. No rent restrictions. Single story detached garage. And yes as always a due on sale clause. 

I reckon the owner doesn't have enough equity to deserve a $60k deposit; and I also reckon the wholesaler hasn't gotten themselves a good enough Contract to deserve $15k. My rough calculations tell me that when you take your foregone $60k opportunity costs and your borrowing costs and your ongoing expenses costs into account, this one will result in negative cash flow! My 2c.  Cheers...

It's no deal, but you have another issue, you can't agree to a financing contract and assign it to a buyer without the seller's consent, they have the right and obligation to underwrite that borrower before it closes. If you're one of those non-disclosure type wholesalers you'll have a problem with that and your fee. :)

Thanks BP! This is a client of a fellow agent but my assumption is that there would be full disclosure. These are just the numbers each party has in mind separately. It has not been negotiated into its proper perspective as of yet but my questions stemmed from wanting to know which kind of deal would potentially work to investors? Any house can be bought right? Just a matter of which method? Subject 2, lease option, etc. Keeping in mind that once we know what structure is conducive to a house that has little equity and a motivated owner (at least from the standpoint that they must move) then we could pull the numbers into what makes sense for a deal.  It could end up that we have to educate the seller as to the fact that this may only work as a zero to the seller deal.

I suggest you ask your broker, most likely a Sub-to, as title must transfer for a sales commission to be due unless you draft alternative agreements to earn a commission from a lease.

By disclosure, I meant that the seller will be informed of the real buyer and that the buyer be qualified by the seller and a mortgage type as applicable.

Any other installment sale, other than a Sub-To will require another listing arrangement, I like the KISS method, go with a Sub-To. Good luck :)

@Teedi Kelly  You said "This is a client of a fellow agent" - you mean the Wholesaler who wants $15k and who is in cahoots with your fellow Agent? And you think there is some more meat on the bone to chew on too? (Or, are YOU that Wholesaler)?

With the numbers you presented, until SOMEONE can find a Buyer who actually wants the property (rather than a pie-in-the-sky Contract), there does not appear to be any meat on that bone for anybody! K. i. s, s indeed...