Is this a good subject to deal?

Question

I have a subject to deal in Dallas County where I'll pay the back payments on the loan to take over for the current mortgage owners. Here are the numbers:

SFR 4BD/3 BA 2570 Sq ft.

Existing Mortgage Balance: 228K @ 1400/mo (PITI)

Repairs: 15k

ARV: 250K

Acquisition Cost (Back Payments): 20K + 5K wholesale fee +2k (title insurance, deed recording, etc)

Potential Rent: 2000/mo

Cash flow: 7200/yr or 600/Mo.

Instead of renting it, the other option would be Contract for Deed where I would request 5-10% down with a sales price of 250k. That way I would acquire the deal and get most of the acquisition price back immediately. Several buyers have responded to the posting. I haven't signed yet.

Anyone's opinion would be helpful.

Thanks!

Randy Rodenhouse · Answer

@Darren James

Just a word of warning on selling on land contract (as called contract for Deed) in Texas.  Residential lease-options exceeding six months and contracts for deed were both dealt a near-death blow by changes to the Property Code made in 2005. As a result, only a few types of residential owner financing remain practicable.  I would suggest consulting an attorney before you proceed.

Jerel Ehlert · Answer

@Darren James  Either do a standard rental or sell on owner financing (Note/DoT).  Don't mix in a L/O or CFD.

Jerel Ehlert · Answer

IN TEXAS, do not give a L/O or CFD to a consumer.  Ever.  Compliance is a nightmare and the penalty is horrific.

Ronald Rohde · Answer

This is not a good deal.

Darren James · Answer

@Jerel Ehlert

Thanks for the reply. So do you stick to regular rentals?

Darren James · Answer

@Randy Rodenhouse

Hi Randy,

You’re right. I do need to get in contact with an attorney familiar with the Texas market. I have a contract for deed real example that was executed in 2016. I was going to use that to start so I could have an attorney review vs draft the whole agreement. The contract asked for 10% down on a 250k home with 2000/mo payment and the buyer was responsible for repairs.

My deal is under market value at 250k, so I’m considering the terms in that contract so I’ll only have a couple thousand in the deal but and still cashflow 600k a month. I definitely don’t want any legal headaches though.

Darren James · Answer

@Jay Hinrichs

Thanks for the reply. The 228k would be less the back mortgage payments, so the existing mortgage balance would be at 208k at acquisition. Looks like at least 15k I repairs.  It’s a very skinny deal I terms of equity.

There’s already a renter ready to sign at 2k per mo. The Taxes are steep in Texas, but it’s already included in the 1400/mo existing mortgage that I would take over.

This is not a slam dunk deal because of the thin equity margins, but the numbers make sense considering a 7200/yr return on a 42k investment...17% ROI. I honestly don’t think I’ll spend 15k on repairs though. The place needs paint, carpet, and a new fence. So the return would just go up if I save on repairs.

Is this a good subject to deal?

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