Contract Help!! - Posted by Kevin Cleary

Posted by Tim on May 03, 1999 at 12:19:26:

In the How-to articles on this site, there is an article on split funding. Give seller say $1500 now, remainder due without interest in six or nine months (how long will it take you to rehab?) No payments, balance of $13,500 due at the end of term. Seller has let it sit for 3 years, what’s another 9 Mos or so? Give the article a read. It makes sense. I am eager to use this technique if I can get an opportunity.


Contract Help!! - Posted by Kevin Cleary

Posted by Kevin Cleary on May 03, 1999 at 11:58:21:

Recently agreed to purchacs “burnt out SF” in good area (park across the street, lake around the corner, walking distance to major employer and downtown) for $15K. Rehab cost $30-35K, sell for $65-70K. House has been vacant for 3 years. Question: How do I write contract to have seller hold paper until I’m able to do a “dual closing”. I’d like to get “rehab money” from local lender, rehab and sell with minimum $ exposure. How do I protect myself??? I’ve been to “city hall” to check on back taxes and to pull building permits. All looks well in that regard. Any help will be gratefully accepted.

Re: Contract Help!! - Posted by JPiper

Posted by JPiper on May 03, 1999 at 12:36:22:

When you say you “agreed to purchase” this house, the question that comes to my mind is what you agreed to. Obviously what you discussed with the seller is now his understanding.

One way though that I might attempt this deal assuming your “rehab” number is accurate and includes ALL costs like carrying costs, etc is to have the seller execute a note for $15K, which will be subordinated to a new first mortgage for the rehab, and which will be due upon sale, or within one year. When this $15K note is subordinated to the new first mortgage, it will now be a second mortgage. Now you go to a hard money lender, private lender, or bank to get a new first mortgage in the amount of $35K based on the after-fixed up value. Note that this puts NO money in the seller’s hands until the property is sold?.so if that is NOT the seller’s understanding of your “agreement to purchase” it probably won’t fly.

Another way to do this deal would be to tie it up for $15K cash, and then market it to a rehabber for an assignment fee. Include a contingency that will enable you to walk away if you are unsuccessful at finding an investor to assign this to. It goes without saying that a $30K-$35K rehab is a substantial rehab?.probably not the best place to start if you don’t have experience. The fact that you wondering how to structure this and/or put the funds together would imply to me that a $30K rehab is not the best first step for you. My advice would be to assign this.


Re: Contract Help!! - Posted by PBoone

Posted by PBoone on May 03, 1999 at 12:35:52:

On the surface it would appear that an opportunity to make 15K is in this deal.
15K purchase
35K rehab
50K total purchase
resell 70K
profit 20K right so far? but what about!!!
points for 50K approx 2-5 pts = $1,000 - $2,500
holding cost for 6mos @ 15% = $3,750
So now your real cost are on a worst case senario
purchase = 15K
rehab = 35K
points = 2.5K
holding = 3.75K
total = 56250.00
resell 70K = profit $13,750 or 80%LTV. A hard money lender may offer to finance $45,500.