Great deal, not sure what to do???

Question

Hello all - I need some advice on a deal I'm working on, I welcome any suggestions.

ARV $250k

1st $82k

2nd $52k

repairs $10k

The home owner is one month behind on his payments. With the 2nd in a vunerable position, at first look you would probably say go beat up the 2nd. But, the seller is wanting $20k to walk and deed me the property. The payments are $1050 (piti). Please help!

Account Closed · Answer

William,

Get some options in place. An option to buy the 2nd at a specific price and terms. An option to buy the seller's position for what ever you can agree. Start getting things in place so you can then see how will all ad up. The options will cost you next to nothing and should lock up people as they reach agreement with you.

Then see what way to exit with your profit.

Skylar Howard · Answer

Thanks for your responses guys. Here's the deal....the $20k was $60K, he ain't goin any lower...yet. I did offer $10k now and $10k upon sale of the property. As far as the the second goes, I know if I wait I can get it in the neighborhood of $5k. I have the cash to get the deal done, however the sub2 seems appetizing because of the low fixed payment. I was considering buying the 2nd note, but I should do that before I catch the payments up, therefore, no shortsale. Exits also are endless, but probably tenant buyer or wholesale.

Please, more help.

Mitch Freed · Answer

I don't see the lenders having much of an incentive to take a discount...mainly because the home has equity and isn't on the market and there seems to be quite a bit of time before the auction...the first may think they can do better than 45k.

I agree with eric, minimize your out of pocket expenses.

I would counter the 20k with a lower offer...but wouldn't wait 3 months to come to an agreement with the seller...as he does have other options..listing the home, selling to another investor etc...

One option would be to simply cash out the seller before somebody comes along and offers him more money.  Forget the 20k deed transfer...do a simple purchase agreement for what he owes plus 20K (or less if you can get him to take less.)  But that depends if you want to get financing to do this deal..and depends on the type of loans you would be making payments on if you just did a deed transfer.

Too many unknowns here...maybe elaborate?

Account Closed · Answer

William,

You say the seller wants X. That is the opening position. No idea how they came up with it but it does not matter.

If there is a deal to be done the numbers will need to line up. Do you think there is a deal here even if you paid the seller zero? Why?

If the seller is not open to a number that works for you then tell them they can call you back when they are 3 months behind.

Your money will spend anywhere. They only have one house to sell and it is a bit of a time bomb.

Work your numbers, check the details, make sure you are not wasting time on this one when there is a better deal out there. Keep your cash if there this deal and others are not great deals. How many great deals do you need each year?

This seller is not feeling enough pain right now. If someone else wants to jump the queue and over pay offer to step away. Lets dumb money go down the drain so you have less competition.

What is the exit strategy if you do buy the place? Do the numbers work as a rental? It is best to have multiple exits so if there is only one way to do the deal that could be a risk too many.

Eric Foster · Answer

First thing that comes to mind is… Do you have the cash for the seller and the repairs?… Or will you need to take out a mortgage to do the deal?… Are you going to wholesale it, keep it, sell on lease option, sell retail?...

These things would help me determine how to best structure the deal…

Rather than trying to short the 2nd, see if you can buy the note at a discount… Seeing that the 1st is behind a bit, they may take $45k fairly easy… If you have the cash to buy the note, it is worth asking…

Also, I would counter back to the seller with $20k say payable $5k now, and $15k when you repair and resell the house… Assuming you are reselling for cash…

I always look at “rate of return” or “cash on cash return”… So getting the seller to wait for $15k will greatly increase that return…

As an example…

Cash needed $1k mortgage, 10k repairs, 20k seller, holding costs? 3k = 34k 
Cash needed $1k mortgage, 10k repairs, 5k seller, holding costs? 3k = 19k

Almost cuts the required “cash” in half… Hence increasing the rate of return!
 
More details please… Where is the cash coming from? And what are you going to do with the property? Wholesale it, keep it, sell on lease option, sell retail?...

Also, what types of loan are in place? Fixed or Adjustable? Term remaining? Rates?