Hello everyone, I have a deal in place now that I would like your opinions on. I have a contract on a vacant property (wholesale) I am now thinking about using the seller financing option instead of a flip. There is no mortgage or lien on this property, and the seller just wants to get rid of it before vandals target it. The property is in excellent condition but not in a high valued area. I'm thinking about 2k down and paying the seller 400 a month for 3yrs. The property will only rent for about 650, I was considering using the lease option agreement with the tenants that I find. What do you think? All opinions are appreciated!!!!
With the bare details it sounds good.
But what kind of rehab cost are you looking at?
What needs updated?
How is the roof?
Hos is the foundation?
John Van Uytven
thanks for the reply @john van uytven, roof is 2years old, new central air and water heater, all appliances are fairly new and will remain with property. Foundation is good for the home being built in 1959, no sign of big issues. Only needs fresh paint an a tenant.
You're paying $16,400 for the house?
Sounds like a winner if the seller would agree. Although, I'd hit them for another year or two on the terms. I talk to people that do 0% loans, but I've never done one. I'd offer something like 5% and say "Mr. Seller, do you need this money for anything in particular right now, or would you like to grow it some as I pay you?" I've done interest only loans that cash flowed like crazy, then cashed out on the L/O when it hit worked well on the couple I pulled off. Just depends on your sellers needs. Some will be up for that, some wont depending on their personal financial situation.
I wouldn't want to be paying $400/mo for something that rents for $650 long term, but that quick payoff sure looks good if you can weather the storms that may come up- vacancies, repairs, etc.
L/O is a good exit, you can probably get your $2k back and still cover your payment pretty handily. Just know that that $250 isn't profit, you need to build up reserves and $250 probably isn't enough to cover things over the long term. It'd take almost 2 years of that to pay for one HVAC replacement.
@Christopher Williams Why lease option it when you could wrap the existing mortgage, you be in second position, pay the seller off as you planned and then you'll hold the paper until it's paid off. Now this option is more complicated but it will net you more money. If you charge the tenant 10% interest on a xx year term for xx amount, that little $16k house will bring you a lot more money. Now you'll have to use a residential mortgage loan originator and have an attorney look over it but it's a sweeter option. Jus throwing that out there!
Well, since you are buying it as an investment property I would try to get it amortized for 15 years payable in 10 years with no prepayment penalty. This way your monthly payment would be very low and you could safely and comfortably put aside money to keep up the maintenance, pay your property taxes and pay for an insurance on the property. You can then save whatever money you can to prepare for paying off the house. Why make things hard on yourself?
@Darrell Shepherd the seller just wanted to be done with a property, so that's why I considered such a high payment and short term, the property is in excellent condition and only needs paint, it shouldn't need anything major for a few years. The L/O contract will state that the tenant/buyer will be responsible for upto 300 in repairs in any given month.
@Eric Moore that is a good idea but there is no mortgage in place, the seller has owned in without a loan for 13 yrs.
@Gilbert Dominguez that would be a Great option but the seller will not agree to such long term payments on such a small amount. The seller wants out now because she is elderly and has another property she just received from her fathers passing. Trying to persuade her into a 3 year pay off will be a challenge.
@Christopher Williams a RMLO can originate the mortgage for the owner. He or she will be in first position and you'll be in second.
@Christopher Williams to clarify, the owner will be the bank. So it's not like they will be taking out a loan. The tenant buyer will be taking out the mortgage for the property. The owner will be Chase bank.
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