@Jerry Puckett @Adam Roberts Sorry it took me a bit to reply, I spoke with Eve on the phone but forgot to update the thread. Please bear with the long reply, I want to make sure everyone understands:
Okay so here's what it looks like so far. Looks like the seller got this loan 2-3 years ago and still has a principal balance of 75k. Seller's underlying lien (UL) is at 6.5% (approx). Seller wants 15k. House is worth 80-90k
What we would do is agree to buy the property sub2 with a down payment of 15k paid out when the property is sold to our back end buyer (the wrap). Our contract works in a 60 day option period with a 30 day optional extension. Once under option contract we are given the right to go out and market for a buyer. We'd then go out and look for a buyer who has at least 15k as a down payment, and market the property at at least 90k.
Owner financed properties are able to be sold at 110-120% of the retail price because you're adding value to the house by offering the financing built in to the property. So here we are with a $90,000 home that can realistically sell for 100k OF. However, let's use bottom end numbers so we have a base line
say the house sells for 90k OF with a 15k down payment. Once you find the buyer, you'll go to closing with the seller and the buyer and close the same day. At closing with your sub2 seller you'll need to provide full consideration so that you aren't breaking any double closing laws. This consideration can be provided through a promissory note to pay the 15k off w/ no interest within a week or something like that.
Once you close with your seller, close with your buyer, collect the 15k DP, turn around and give that to your seller and now your cash needs are taken care of.
But where's the profit? well the UL is at 6.5% and we know it was taken out 2-3 years ago. The seller has said there's 13 years left on the note, so I'm assuming it was a 15 year UL, and since we have an outstanding balance of 75k I'm going to assume the original principal balance was about 78k. I can estimate that the principal and interest payment to the UL is $679.46 by knowing this (however we are still awaiting solid numbers from the seller which will be shown on a mortgage statement)
Our loan the the end buyer is now for 75k as well, which matches the UL, however we're going to charge 8-10% to the buyer. I'd charge 9.5% and we will need to go for at most a 21 year note in order to make sure our UL is covered. That being said, I'd go with a 20 year note at most. This would make your end buyer's payment $699.10 PI.
So for the next 13 years you will only profit about 20 dollars a month, BUT after that 13 years is up your profit turns into 699.10 per month for 7 years! That's $58,724 total! And then you add up the $20/mo you were getting for 13 years and that adds another $3120 to it for a grand total of $61,844.40 of profit. Remember:
A) Literally no money has come out of your pocket for this transaction, so you're making 60k off of NO money put in
B) IF the buyer defaults, then you get to foreclose on the property and re-sell it with the same terms, but this time you have no seller to pay off so you'll be collecting the full 15k up front as profit, starting a NEW 20 year note and getting all your profits AGAIN.
Now remember, this is off of a deal that otherwise was trash, so for a property that was not going to make any money you've made a base line of 60k with potential profits skyrocketing from there.
Also, if you're able to sell the property for 100k instead of 90k you're getting a 10k principal spread as profit, and that 10k is going to be interest bearing! If you sell for 100k the buyer's monthly payment PI is $792.31 which means you've got a $110/mo profit for 13 years and your end total profit is 83,714
Pretty good for something that wasn't a deal ;-p amazing is the power of interest!
