Posted by Suzanne on February 21, 2002 at 15:58:53:
I’m not sure where Randy got the $4,000 from. You are not taking out a new loan for this house. You already stated that the current owner is paying $700 on this house, and needs some debt relief so he is not paying a double mortgage.
What I see you doing is creating a L/O agreement where you pay the current mortgage of $700, and have the tenant/buyer pay 2K in monthly payments giving you a monthly cashflow of $1,300. If you has to contract the house for the FMV, you will receive no front end or back end, but the cashflow in the middle is well worth it.
Also, you could have another profit center if the first tenant/buyer you put in the house decides not to buy the house. Then you keep the non-refundable option money that you collected up front which is usually at least 3%-5% of the selling price. The best part is that you get to collect that option money again from the next tenant/buyer you put in the house.
I see this as a very good deal for you. I agree with Rob above that if you could talk the owner down on the price a little, it would even be better. I don’t see it as necessary with the nice cashflow you would be receiving.
Best way to approach this deal?? - Posted by Heidi W
Posted by Heidi W on February 21, 2002 at 24:08:07:
Seller moving out of state. Already bought a house (under construction) but still needs to get an additional $150K Loan before he moves in. The house won’t be ready until Summer - and that’s fine because his kids are in school now.
He’s asking $445K for house and has $350K in equity. He doesn’t need cash up front and seemed interested in Lease Option. His payments on the current mortgage are $700 month. I can easily get $2K a month rent for the 4/3.5 executive style home with a view in a nice neighborhood.
I haven’t checked comps yet - but $445 seems reasonable.
What kind of offer - if any should I make. How do I handle the fact that he wants to live there until summer? I have an appointment Friday - any advice will be greatly appreciated.
Re: Best way to approach this deal?? - Posted by Randy, OH
Posted by Randy, OH on February 21, 2002 at 10:46:56:
Heidi,
I am probably missing something here, but I do not see anything close to a profitable deal. First, you say he needs 150k for his new house but does not need any cash from his old house. That does not make sense. Second, you say you can rent this house for $2,000 per month, but your payments on a 400k house will be close to $4,000 per month. So your negative cash flow will be around $2,000 per month. What am I missing here?
Randy
Re: Best way to approach this deal?? - Posted by Rob A. ¶
Posted by Rob A. ¶ on February 21, 2002 at 08:52:05:
Ok, You have a seller that is willing to do a lease/option through you with his house. Has a lot of equity, and wants almost full retail price. This can be done. But you might want to try to get the asking price down a bit, maybe around $400K it possible. This will be your ‘back end’ profit. but not necessary.
I’ll tell you one thing, if I had the same house/deal I would jump on it for the cash flow, looks like $1300/month. WOW
Now the summer thing, lock it in now with a lease/option contract. You cannot get someone into this house until he has moved out. Gives you a lot of time to get a GOOD t/b that totally qualifies for this house. T/b need to know that they cannot move in until a predetermined time. Gives the t/b time to possible get the funds to buy the house, cashing the owner out earlier than planned. Seller will love it.
And it gives you a great reputation to back you up for future deals. The “Lease/Option King” hehe. Exercising the option quickly. Looks really good in your portfolio.
Re: Best way to approach this deal?? - Posted by Heidi W
Posted by Heidi W on February 21, 2002 at 12:23:47:
I’m sorry I wasn’t very clear.
He seemed OPEN to a lease option. He doesn’t need $150K cash to move into his next house unless he wants to pay it off. He could easily get a loan for the $150K and move into the house that way - he thought his payments would be about $1000 per month. We agreed that having the debt relieved on his current property (his $700/mo) payment would make getting the new loan easier. He’s already put $100+K down on that property.
Bottom line is I think he doesn’t need his cash out…
I’m trying to put together 2-3 different offers that would make sense for both of us.
One of my friends suggested I get a first for $150K, to help him off his first (and let him move into his next home having it free and clear) and carry back a 2nd for the rest (at a lower than asking price), with that 2nd payable in a baloon with no interest in 5+ years.
I’m not sure how to get that first (not with my current Income/Debt ratios.) Any ideas?
Also, I’d prefer to offer something with less money up front. Maybe get him 10-20K, take property subject-to, make his payments on the first for X years and cash him out after X years?
Given the he doesn’t need the $150k now concept - do you have any ideas Randy?
Re: Best way to approach this deal?? - Posted by Randy, OH
Posted by Randy, OH on February 21, 2002 at 13:27:14:
Heidi,
It looks to me like you are trying to solve a problem that just does not exist. The seller owns a house with $300k equity and does not need any cash to get into his new home. Why wouldn’t he just list his old house with a realtor and put $300k in his pocket? Is there some reason why he cannot sell his house in the normal way? Sorry for being negative. I may still be missing something.
Randy
Re: Best way to approach this deal?? - Posted by Heidi W
Posted by Heidi W on February 21, 2002 at 13:47:52:
Randy,
I understand your feelings. I too, think this sounds too good to be true. But who am I to pre-judge the motivation of the seller. Bottom line is he seemed eager to meet with me and showed an interest in waiting for his equity.
I would offer him a L/O around $400k-$405k. Of course try to make your lease payments to him as low as possible, at the $700/mo level if he agrees, just so he can cover his payments but you could go up from there if you needed to.
Assuming you will not be giving him any option cash(don’t offer), you could get in for $0 and get anywhere from $14k-$20k option consideration from your tenant buyer, the monthly cashflow could be HUGE if you’re able to get the seller to agree to anything near $700-$1000 and you can charge $2k+ (I’d probably still do the deal even with a near breakeven), then when your tenant/buyer cashes you out and you payoff the underlying mortgage and then the balance of what you owe seller you’ll have $30k or so on the backend. Sounds like a helluva deal even w/ these conservative numbers:
$450,000 your sales price to tenant/buyer(too low?)
-$405,000 sales price to you
=$45,000 profit($15k upfront from t/b, $30k backend)
whatever you get in monthly cashflow is gravy and it sounds like there could be a lot of gravy on this one.