All Forum Posts by: Phillip Tillotson

My intention with this post is to give readers a possible way for getting into real estate should the right circumstances present themselves. I left out exact details of the deal to keep this short. Also, this deal was not created to make me a lot of money. It was created to help a person I know, and to get me into real estate investing with a lot more funds.

The Problem

A person I know came to me needing money (10k+). He is not employed nor does he have a vehicle. The only thing he has is a house free and clear that was gifted to him. He has poor credit so the banks wont loan anything to him. He informed me that he wanted to sell his house so that he could pay off his debts and restart his life. If he were to straight sell his house then he'd have to take a large tax hit since the house was gifted.

Also, I have been trying to get into real estate investing. I thought that this might be my best first shot..........I was wrong.

The Solution

We offered a seller financing deal that would change his life and mine. We first assessed the house. We determined that it would be worth around 124k$ after repair. The seller was willing to sell the house for 100k$. We determined that it would take 10k$ to repair the house. We lined up a hard money lender for 20k$. 10k$ of that would be a down payment to secure the seller financing and allow the seller to pay off his immediate debts. 10k$ would go into rehab. Our goal would be to sell the house for 124k.

Now the good part. The seller would note receive the 80k$ difference immediately. Instead, it would go into an escrow account. The note would be parked on my house. The seller would receive 350$ a month interest payments only. I would then have the ability to use the 80k$ to invest in other properties. The seller would be my first pick for contract work per the contract. Additional provisions could be negotiated on a per deal basis. This would continue for 10years or until we mutually agree to end the arrangement. (there were several provision details for protection of both parties but I just want to post the cliff notes)

This means that he was buying himself a job, getting a steady monthly income, and clearing up his present issues. I would have a chance at some funds to start my real estate investment career. My thought was that we would form a LLC and start making some big bucks once we sold his house. I really thought I was doing a good thing taking him from no job to potentially making a lot of money.

What Happened

The seller agreed to and signed the letter of intent. When we gave him the sales contract for the house he freaked out! He thought we were crazy for expecting him to sign the sales contract so soon. I later found out that his ex-girlfriend had been trying to talk him out of it, and he was not capable of doing physical labor. This means that he was not able to perform his part in this contract. After he blew up he stopped communications with me. I decided that his outrageous behavior and lack of communication were good indicators that I wouldn't want to do business with him. There were also a lot of risks for me involved that I could no longer trust him with. (like MY HOUSE!!!!)

Conclusion

Had everything gone as expected it would have been great. I would have had funds to invest with, an incredibly smart/experienced mentor, and a partner to help with the rehabs. He would have had all his problems solved and a bright future. Instead, I'm back to looking for that next opportunity. Hopefully I can turn this experience into an opportunity. If anything, hopefully I gave somebody a good idea for creating a real estate investment opportunity.

It is important to consider when they purchased the home. If they purchased 2006-2009 then they probably will be upside down for a long time.

I thought Dodd Frank prevented balloon payments?

@Bill G. What do you think?

I think the hard part will be convincing the bank that the 60k you suddenly received is not a loan. If they suspect it is then you will still not qualify. You'd need to finance the entire purchase through hard money and then refinance when you became eligible. This may make it negative cash flow.

Talk to lenders to find out what's possible. I suspect that the numbers won't add up.

@Bill G. is a good teacher. Glad I could help.

Carry back loan would work. This is where you put down 100k and the seller carry's a note for the remainder. You pay the seller back the 60k + interest.

You should disclose what you know before asking. The way you phrased it had me thinking the same thing everybody posted. I just didn't post it.

We are all well intentioned. The reason they phrased things the way they did is because they wanted to express the importance of a closing agent. Often times, a new person will not understand this and will just do whatever it takes to save a dollar.

Had they known that you already do closing duties for yourself and others then they probably wouldn't have responded so harshly.

I agree with Heather. If the bank agrees with the buyer then great! However, you better double check cause that sounds too high for USDA.

Previously, USDA loans took a while because of the government shutdown. They then were backlogged for a while. My loan completed in a timely manner even though they were still "back logged." I expect that you'll be fine.......unless the government shuts down or you try to closing during a heavy government holiday time period.

300k!? USDA loans can cover 100% of the loan. The possible loan amount is determined by how much you make a year. My banker told me that 75k$ a year was the cutoff. Not sure what price of home that would be. I made 40k$ when I applied and was eligible for 112k$ I'm not sure what the additional fees are called, but I know that there are extra fees. You don't need to be worried about this as it will only affect the buyers. It will be tacked onto their loan.

I pre-approved so I knew exactly what I could afford. You should check the buyer to see what he/she is pre-approved for. If they are pre-approved then it is painless. If they are just guessing then it will be painful. 

Mine actually closed early. We were not supposed to move in till after Christmas. Sellers wanted to push it and everybody else was on board!