How to structure this deal. - Posted by Al

Posted by Al on July 15, 2008 at 13:17:35:

wow…that’s a lot of ideas. Thanks for your help.

How to structure this deal. - Posted by Al

Posted by Al on July 14, 2008 at 22:22:00:

I came across a very willing seller. She has a townhouse for sale around $198K. It’s been on the market for 2 years and she has received no bites. She’s willing to rent it out for $1300/month. I need a primary residence and I need some advice on how to structure this deal.
$1300 is a little beyond me right now (going thru a divorce) I can afford around $900. So I was thinking of asking her to either refinance or do some sort of owner financing. Some way to get the monthly down so I can afford certain things like food and gas. Any ideas?

Thanks.

Lots of ideas - Posted by Wayne-NC

Posted by Wayne-NC on July 15, 2008 at 07:05:33:

Or a combination thereof. First of all rather than tit-for-tat posts many assumptions need to be made. Does she own it outright and will $900 a month be sufficient for her to satisify her debt service on the property if not? Do you have money or another asset to put down as security? When do you plan to purchase? See, a lot can be said here. Now secondly, time on market is a function of price. For example, that property would sell in 2 seconds at $198 but at $198K it won’t in 2 years and counting. So with that said a price somewhere in between is to be determined and that can adjust widely with terms. It would be safe here to assume that you don’t have a down payment because if you did that would be enough to subsidize the rent spread of $400/mo. OK here comes an idea however far fetched it can be. I don’t know your sellers motivation so here goes. Offer her $1,400/mo with a fair purchase price. The term can be as long as you can get, maybe between a year or two. Get the deed in your name now and have her hold a note and mortgage with a balloon. Now tack on the $500 deficit on to the purchase price when you refi. Are you beginning to see all of the assumptions comming in to play here now? Anyway, getting the deed in your name helps in a couple of ways and one being a seasoned title for a refi. The lender will use the appraised value rather than the purchase price. Hopefully over time the appraised value will increase. That is a market risk that somebody has to take. You can structure your deal to read the agreed upon price or appraised value (plus rent shortfall) which ever is lower on the balloon date. You now have time to stablize your life and be able to perform on such a deal. I have sold 2 properties recently this way and it worked like a charm. They did have plans to increase the value of the properties through “sweat equity” and additions etc. With the deed in their name they had the confidence to do that. Besides, they were going to add substancial value to the properties so if I had to take it back it would be worth more. This I know. Ofcourse it helps with their LTV when the refi happens. Well, enough said here. I’m sure plenty of other ideas will surface in the near future.