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Updated over 12 years ago on . Most recent reply

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Kelly P.
  • Orlando, FL
26
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113
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Creative strategies for wholesaling Probate deals?

Kelly P.
  • Orlando, FL
Posted

I do wholesaling from probate and absentee owner leads. I have a probate lead where the property's ARV is $200k but there is a $160k mortgage. Obviously the wholesale formula does not work in this situation but I wanted to know if anyone else has had a similar situation and used a creative strategy to contract and wholesale the deal.

Thanks for your input.

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158
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Grant Kemp
  • Investor
  • Dallas, TX
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Grant Kemp
  • Investor
  • Dallas, TX
Replied

(apologies in advance for the wall of text, I just wanted to explain exactly how this works)

A couple of questions:

1. Was the home willed to a family member?
2. was the will probated?

If the property was willed to a family member so they are now the proper owner of it, this is how I would structure the deal: if you think you can sell it as owner financed at 200k, offer the family member a note at 6% over 20 or 30 years for maybe 20k in exchange for them selling you the house subject to the existing mortgage. This means you would be buying the house with no out of pocket money, giving them a note for 20k, and promising to take over the existing payments on the house. You could then turn around and sell the house as an owner financed house for 200k, collect a 10k down payment, and finance $190,000 to the end buyer at 8.5%. There's the wrap. You're financing 190, but you owe the seller 180 (their original 160 mortgage, plus the 20k note).

SO let's put numbers to that:

Let's say their mortgage was at 6% and they have 20 years left on it (just for the sake of this argument...if you get me real numbers I'll change this): their PI would be 1146.29 a month

Now you've also promised the seller 20k over 20 years at 6% (this is their incentive to not let it go back to the bank, and rather to let you have it). That would make you owe them 143.29/mo for 20 years.

So now, you essentially are "in it" for $1289.58/mo

But then you turn around and sell the property as a wrap. you owner finance it to someone for 200k. They give you 10k down. That's immediate money in your pocket. Now you're financing them 190 @ 8.5 for let's say a 30 year note (you can do whatever length you want here). They would then owe you $1460.94/mo for 30 years.

So what does that mean? You've put 10k in to your pocket right up front and you are getting 171.36/mo of residual income for 30 years (or until the buyer refinances).

The risk here being the "due on sale" clause which gives the mortgage company the *option* (but not the obligation) to call the mortgage due whenever the property sells. In our experience though, as long as the mortgage gets paid, the banks are not calling the loans due.

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