How should I structure this deal?

Question

Hi Everyone!! I've been gone for a while rehabbing houses ... now I'm back and need some of your expertise...please advise. Here's the deal:

4/2/2 Frame house in FL
ARV: 150K-160K
Mortgage Balance: 70K with 18 years to go
PITI: 850/month. Seller is not behind on payments.
Rents: 1000-1200 / month
Condition: Good, needs cosmetics, carpet and paint, it's livable, it’s in best condition cosmetically, but structurally it's great.

Seller is motivated, since she moved to another state after her dad passed away. Seller is willing to let someone else take over the payments on the mortgage, but she wants some equity out of it. She is also willing to create another Note for the equity.

Here are my thoughts:

OPTION 1) I can offer her $90K, taking over the $70K at $850/month, and creating another Note for $20K, 30 years, 4.5% APR=$100/month for a total of $950/month. Balloon in 5 years.

Then I can sell it to a Landlord Investor for $100K, 10K down, and take over the payments on both Notes. The Landlord Investor can rent it for $1100/month and cashflow $150 without using a Property Manager. So I don’t know if it makes sense.

If this is my best option, should I do a Subject To and wholesale it (landlord investor taking a risk at due on sale clause)? or a Contract for Deed and wholesale it?

OPTION 2) I can offer her to do a Lease Option for 90K, with payments of $850/month, no rent credits, and let’s say 2K Option Deposit, for 5 years.

Then I can do a Sandwich Lease Option with someone else, for 110K, 12K down, 1100/month, no rent credits, for 3 years.

I know in this Option I can make money up front, in the middle, and at the end. The only thing is that I will have to be involved, and be responsible for my side of the contract with the seller.

What you guys think on this scenario?

OPTION 3) I can offer her $85K, with $15K down at closing, and take over the $70K at $850/month with a Balloon in 5 years. Then I would market it as a Seller Financed deal for $95K with $25K down, and take over the $70K.

Again, this would have to be for a Landlord investor or Owner occupied. What you guys think about this one?

Any advice would be be appreciated.

Michael Quarles · Answer

Hey,

I'm lost if you're using a "standard" contract to purchase and you're intention is to assign how are you then using a contract for deed for the resell?

Michael Quarles · Answer

Are u using a performance contract to buy

Michael Quarles · Answer

So I understand, you're buying on a performance contract? And substituting the buyer?

Account Closed · Answer

Priscilla: if the ARV is really $150K and you have a seller that's nervous about a sub2 (not to mention a sub2 wrap), why not: 1) do the carpet and paint and get it sold retail, and 2) Make the terms of the sub2 offer 6 months and then full payoff?

Are you sure of values here? Is it only a good deal if you take it sub2? If you've really got a deal with 50K in equity, don't lose it over the seller's sub2 concerns. Eliminate them and buy the property.

Priscilla Z. · Answer

Update:

Got the property under contract. After getting the payoff information, turns out the seller actually owes $80K on the mortgage, not $70K she thought. I'm giving her $2K now instead of the original $10K we had agreed on, plus she's some months behind on mortgage payments, so I'll need to pay those also, total I will need to get the mortgage up to date, pay the seller her $2K and close is approximately $8K.

I'm selling it for $108K, with $28K down and payments of $840/mo (which includes mortgage, taxes & insurance) for five years. After the 5 years the buyer will need to refinance to pay the mortgage off.

This property can be rented anywhere between $950 (very low) and $1,400 per month. I'm really thinking more like $1,100 - $1,200.

That's the update. Any final thoughts?

Mike Jakobczak · Answer

Priscilla Z Whats the details on this property might be something I'd be interested in. PM me or e-mail me

Priscilla Z. · Answer

Michael: I will have a purchase contract with the seller for 80K, of which 10K are going to her and 70K I will be taking over via agreement for sale.

Then I will find a buyer and sell it for 95K with 25K down of which 10K will go to the seller and 15K to me and 70K will be taken over via the agreement for sale.

The 70K will be wrapped in the sale, and I can do an assignment or double escrow.

This is how I plan to do it. I just heard from the seller yesterday, and she accepted my 80K offer taking over the 70K and giving her 10K. Now I have to sign all the docs and verify the mortgage info.

A little nervous if you ask me. It would be my first time doing this type of transaction.

Marie: At this time in my investing career I rather get 15K and be done than take the risk of making monthly payments, paying the seller and hoping to sell retail sooner than later.

This deal is perfect for a season investor that can put a tenant/buyer for 3 years at 130K-140K and take the risk and wait, or it would be great for a long term landlord investor that will fix it quickly, and just rent it for some cash flow and future appreciation.

Priscilla Z. · Answer

Michael, no I'm not using a performance contract, just a regular purchase contract. What would be the advantage of using a performance contract if you don't mind?

Priscilla Z. · Answer

I'm buying the house at 80K of which I take over the payments on the 70K mortgage and give 10K to the seller, but the contract is assignable, so I'm selling at 95K with 25K down of which 10 is for seller and 15 for me and 70 are taken over.

The buyer would be substituting me.

Priscilla Z. · Answer

Thanks Mike for your quick reply.
I was planing on selling it to someone who can put a $25K down, and take over the mortgage on a contract for deed. I didn't know I could verify credit & background just to satisfy the seller. Good idea. I just think that 25K is enough security not to mess the deal up, but of course, the seller only knows that she is getting 10K and that might not be good enough.

How should I structure this deal?

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