how to do this deal

Question

I am about to go into contract with my neighbor for his house...he wants 410K, the house is worth 525K and i have a buyer ready to purchase the house for 500K...how would I do this deal. I don't want the neigbor to know that I am flipping it and I don't want the buyer to know how much I am getting it for.

Jason F · Answer

Basically, from the lender's point of view, your friend (their borrower) could be in this just to split the $90k with you. For a while, sleezy investors were entering into this kind of deal and promising a profit split for people that would line up the financing to buy the house. After closing the borrower, having over paid for the property, would never make a mortgage payment and let their credit take the hit for the $45k they were making from the deal.

Now lender's are very weary of this and it makes it hard for everyone else who does things on the up and up, like you and your friend.

You will need to tell your friend how much you are making and assign the contract to him. Then hope that the bank doesn't get too picky with the $90k that is being paid to someone other than the seller on the HUD-1.

I don't know if this is possible but could you hold a second mortgage for the amount your friend will owe you. Then it would should up on the HUD-1 as a mortgage and not a 'fee' or cash disbursment. Just an idea. Does anyone else know if that would work? Then you would just get the payments from that $90k loan or you can sell the note.

Jon Holdman · Answer

As far as getting a conventional loan for the end buyer, assigning the contract would be the best option.  That way the property moves directly from the current owner to the end buyer.  Your assignment fee would be paid at closing.  That's doesn't, however, meet your desire to avoid either party knowing what's going on.  The lender may have an issue with a $90K assignement fee on a $500K property.  That's almost 20%.

The seasoning requirement is because lenders think they're being conned when a property is bought and sold very quickly at a significantly different price.  The lender is going to look at the $410K you paid and say that's the true value of the property, not $500K.  If it were a fix and flip, and you were doing a bunch of work, they would take that into consideration.  But just selling it immediately and for a 22% increase in price will raise red flags.

Jon Holdman · Answer

It will be difficult for your end buyer to buy this property if they are using a conventional lender.  The lender will do a title search, and will discover the seller (you) is not actually the owner.  They will be suspicious that something improper is going on, and will pull the financing, perhaps at the very last minute.

In some cases, lenders want the seller to be on title for a certain period of time, anywhere from 90 days up to a year.  Your end buyer should be sure their lender is aware of what's going on in order to avoid a last minute roadblock.

Double closings typically require hard money, cash, or some other sort of investor loan.

Mohammad Ali · Answer

The buyer is a friend of mine who is looking for a house. He has a preapproval in hand from his bank for 525K. Where would I find a good investor friendly title company in Floral Park, NY (Nassau County). Title seasoning issues?

Mohammad Ali · Answer

Can I just put his name on the contract and get like a finder's fee with the closing...why is seasoning required on a flip? Is there no way to do a double closing or flip on the table

Jason Cummins · Answer

If you are CERTAIN you have a buyer for $500,000 get it under contract ASAP.  If you are certain, get it under contract for said $425,000

Make sure you contact a GOOD investor friendly title company that will allow you to double close, or simultaneous close.

You then write another purchase agreement from you as the seller, and the new buyer for $500,000

Once title clears you go to do your double closing.

The only issues is how is the new buyer going to finance the house?  Their may be title seasoning issues.