Hello Friends! I have a situation that could potentially be a good deal but I am not sure how to proceed. Any ideas will be much appreciated. 

So I am thinking about WHOLESALING (this will be assignable option) a property that is owned by a couple going through a nasty DIVORCE. 

ARV of the property = approx $400K (need some repairs ~~ 20K)

Current Mortgage Lien = 294K 

The husband has stopped paying property taxes and that bill, as of this moment, is approx $70K. 

Is it worth it doing an assignable option to buy on this deal when the profit margin is about $36,000 BEFORE I assign it? I am thinking that even if I make a $5K assignment fee, my cash buyer will not have enough of a margin to fix and flip. 

How would you approach this situation? Would love to hear your thoughts.

Thanks all. 

Honestly this is not a fix or flip deal! It "might" a good deal for a long term buy and hold. The only person i see it appealing to is a owner occupied who is willing to do work and wants a "good" deal. 

Thats what I thought! Thank you for your insightful comment Elizabeth. 

Best wishes! 

HI Fez.

You could refer this lead to an agent that you know and propose a split if they are able to sell. That way you could still realize a few dollars and strengthen a relationship.

Good luck.

Stephen 

Fez, 

I gotta tell ya, make sure both parties sign off that it is cool for you to do whatever you are doing. I had a wife say it was ok for him to do a lease option and then changed her mind once we assigned it and had the husband thrown in jail for not following court orders to sell. LOL! 

I can laugh, but he was not amused for a week! 

so the point of the story is FULL DISCLOSURE and lots of signatures! 

Good Luck!!

@Fez Moghul  Maybe I'm missing something, but if I look at the numbers like this...

{400,000 (ARV) - 20,000 (repair) - 70,000 (tax)} * 70% = 217,000 (MAO)

If I couldn't get into the deal at or below $217k, then it wouldn't be a deal for me.

Thank you Hazel, Rob and Stephen. Your comments were really helpful. 

Originally posted by @Hattie Dizmond:

@Fez Moghul  Maybe I'm missing something, but if I look at the numbers like this...

{400,000 (ARV) - 20,000 (repair) - 70,000 (tax)} * 70% = 217,000 (MAO)

If I couldn't get into the deal at or below $217k, then it wouldn't be a deal for me.

Incorrect use of the 70% MAO formula there.

The proper way to use that formula is:

MAO = (0.7 x ARV) - (repairs plus other expenses)

So doing the math we get 

MAO = (0.7 x 400000) - (20000 + 90000)

MAO = 280000 - 90000

MAO = 190000

To wholesale you would have to go even lower to allow for the assignment fee. 

@Steve Babiak  Steve, many thanks for your analysis. 

@Steve Babiak  

Good catch.  I had my order of operation wrong.

@Steve Babiak @Hattie Dizmond In your equations you guys did not account for the existing loan mortgage on the property. If he is wholesaling, the cash investor would have to also pay off the existing mortgage $294k, $70k taxes, repairs $20k, closing costs, and assignment fees

Originally posted by @Jose Falconett :

@Steve Babiak @Hattie Dizmond In your equations you guys did not account for the existing loan mortgage on the property. If he is wholesaling, the cash investor would have to also pay off the existing mortgage $294k, $70k taxes, repairs $20k, closing costs, and assignment fees

The existing mortgage balance has nothing to do with how the MAO is calculated; MAO is calculated according to the formula I used in an earlier post.

Now, once you have the MAO - in this case it is 190K - and you see that the mortgage balance is above that MAO figure - in this case that holds true with mortgage balance of 294K - then you have a property that is a "no deal" for the typical fix and flip scenario. I certainly wouldn't expect anybody to pay that much over MAO ...

@Steve Babiak ah ok, i agree. However, I didn't see you include the wholesalers profit in the equation 

MAO = (0.7 x ARV) - (repairs plus other expenses). 

Definitely between 70% arv accounts for the flippers profit though

Originally posted by @Jose Falconett :

@Steve Babiak ah ok, i agree. However, I didn't see you include the wholesalers profit in the equation 

MAO = (0.7 x ARV) - (repairs plus other expenses). 

Definitely between 70% arv accounts for the flippers profit though

 Re-read my earlier post; I did write that the wholesaler's offer should be lower to account for an assignment fee - or profit as you termed it.