I hit the ground running early late last week and found a FSBO motivated seller that's moving to Dallas, TX but needs to sell his vacant home before he can move.
- Home is owned free and clear
- 3 bed/ 2.5 bath / 2 story home
- In a great "middle-class" family neighborhood.
- Currently vacant.
- Built in 1987
- No repairs needed (so he says. haven't walked through property yet though. We need to agree on sales strategy first)
- Checked out the records: No liens, property taxes all paid, seller is the real owner.
- He's asking $130,000 as lowest price for the home
- Home appraised for $117,000 in 2014 according to records
- Current comps show right around $120,000 in his area
- (Sidenote: Seller paid $70,000 for the home back in 2010)
I approached him asking if he would consider a lease purchase.
He said he would be interested, and asked what I had in mind.
So, I proposed a lease option assignment for his asking price of $130,000. I even agreed to split the assignment fee 50% with him ($2,250 each), and told him that I would also go as far as making a professional video to get the property occupied and good to go within 30 days.
After seeing he wouldn't get much cash up front, the seller said he "really needs to SELL IT so he can buy a new place in Dallas using the cash".
I see PLENTY of potential here. But this is my first deal... so I'm looking for advice.
To cash out with an assignment fee
Buy low with an undecided investment partner for cashflow or wholesale split.
MY 3 NEW OPTIONS FOR THE SELLER:
Here's what i'm thinking I will offer him next:
"Okay, Mr. Seller, you need cash to buy a new home in Dallas.
Totally understandable. How about this..."
Option 1- Introduce seller financing to him and offer $115,000 with 10% down.
Find a buyer for him, and assign my contract.
Option 2- Seller finance offering $100,000 with 20% down.
Find a buyer for him, assign my contract.
Option 3- Pay $90,000 cash for the property. (then wholesale the home to a buyer/investor or seller finance it myself with a partner)
At this time, I do not know where the cash will come from to purchase the home, but I know I can find that easily.
My biggest struggle right now is creating a deal that makes sense for everyone in the transaction.
Any creative ideas, tips, or flawed logic behind my idea is more than welcome.
(@brian gibbons, I've taken a lot of what I've learned from your threads. Would especially love your insight!)
On a free and clear house, no work, great condition, great location, offer an installment sale, for a buy and hold property for yourself.
Get the payment to owner low enough below market rent for a great cashflow to support PITI and maintenance and vacancy;
purchase price can be $125,000.
payments to seller (market rent - 350) or better.
Installment sales have imputed interest (See Applicable Federal Rates IRS)
I would offer cash or terms, cash is .70 x arv - repairs.
Owning private mortgage paper is better than owning property: no toilets, tenants, or law suits.
Agree with @Brian Gibbons : your cash offer is too high at $90K since property is only worth $120K. If the house truly does not need repairs, I would offer $75K cash and then wholesale it to another investor for $80K.
As always, excellent advice @Brian Gibbons .
Factoring "imputed interest" into the equation, couldn't installment plans also be considered"seller financing"?
As for the down payment; I'm assuming we would negotiate something substantial enough for him to make his move to Dallas (like 10%-20%).
Final question: if he's carrying the note (I.e. Playing the role of "bank"), I'm assuming I could still lease option the home out with minimal concern of a "due on sale" clause to be called... Right?
Correct me if I'm wrong, but the solution to all these questions is probably "my terms".
Account Closed' advice- $125,000 installment with 10% down)
2) Offered him $75,000 cash to sell me the home outright.
I'll keep everyone posted on how this turns out.
Thanks so much for the help!
This is a cash or terms business.
One tool is not enough.
Situation - Free and clear pretty house ---> installment sale - private mortgage, low down, buy and hold or resell.
Situation - no equity pretty house ---> sub2 or wrap or lease option assignment, exit rent out or lease 2 own or resell
Situation - 20% equity pretty house ---> list it if licensed, sub2 plus note
Situation - 40% equity ugly house ---> wholesale flip or JV and buy it or JV with the seller (buy sub2 + note, own it, jv agreement, improve it with private money, list it, resell it, pay off former owner and private lender, make JV fee of 5% +)
There are other tools but that is enough to get a strain on your brain. :)
And just because you understand those tools, does nt mean you can persuade the seller to use one of them.
Cash or terms. That is the business of a Transaction Engineer. Dont be a one trick pony.