First Rehab, Please check numbers. - Posted by Robuck

Posted by Brent_IL on April 15, 2002 at 01:37:34:

The point is that the seller must hold a note to get rid of the property. They don’t have any cash-laden buyers making them full-price offers.

Sellers will often accept a second position if:

1- They feel so secure that they will be paid as agreed that their loan position is irrelevant.

2- They?re not getting offers and you?re the only buyer around. They take a chance on you and get on with their lives.

3- The sellers don?t really comprehend the effects of a junior position and how it will affect them. They agree because you asked for it.

You can increase your percentage of acceptance if you incorporate the subordination clauses into your purchase agreement and only deal with sellers who are motivated to sell now.

Although I prefer straight subordination or substitution-of-collateral, I’ve done a seller first, institutional second, and seller third a couple of times. You can also split the seller financing into a first and a second if you want to sell a note for cash at closing and need a good LTV.

First Rehab, Please check numbers. - Posted by Robuck

Posted by Robuck on April 12, 2002 at 20:37:46:

I have found a home in a great area and it’s a good brick home (I hate frame houses), I have flipped 6 homes already but the numbers are kind of tight on this one.

Here it is:

FMV=$101,900 or more
Mortgage on property= $69,000
Seller will take= $71,000
Repair cost= $4,000 high

My big problem is the Hard Money lender only gives out 75% of FMV but they might try to value the home around 90 or 95K which won’t cover closing cost. I’ll do repairs off my credit line. I lived in the same model house 4 blocks away for 6 years and can estimate just about everything.

Any help in what you would do is appreciated.

Re: First Rehab, Please check numbers. - Posted by linda

Posted by linda on April 12, 2002 at 21:23:40:

Why would the lender value the home at only 90-95 if FMV is 101,900? Double check your comps and ask your lender where his came from.

I just did a similar situation. The profit was too thin if I used private money so I insisted that the seller hold a note for 7 monthes in order to defray closing costs and give 6 monthes seasoning. If the house doesn’t sell at retail, I’ll be able to do a cash out refi to cover the out of pocket rehab costs and hold the property for rental. (with a 100 pos cash flow per month)

Linda (Ohio)

Re: First Rehab, Please check numbers. - Posted by Todd H

Posted by Todd H on April 14, 2002 at 21:26:13:


How did you get the owner to hold a note? I have yet to understand or figure out how owners are willing to hold notes on homes they either don’t want or can’t afford. All the ones I have spoken to are ready to do nothing but get rid of the property.

Is this how you first approach your rehab properties? How do you convience them this is a good deal? Do you have to put down cash money? Can you have the seller agree to carry a second, have the bank hold the first and the money of the ARV that the bank gives cover the cost of the repairs?

Thoughts and suggestions?

Todd H.

Re: First Rehab, Please check numbers. - Posted by linda

Posted by linda on April 15, 2002 at 08:15:16:

Hi Todd,

I had the deal figured out before I ever went to see the house. I was going to offer 35,000 cash to start and work from there. The max I could go was 40,000, but if he would carry the financing till I got refinanced, I could go 45,000.

I knew all the comps in the area, market values, which homes were sold to investors & which were sold retail. This is powerful info!

My exit strategy was to sell at retail within 3 monthes, but just in case I had to refinance and keep it as a rental (or L/O, L/C)I knew I needed closing costs & 6 monthes of seasoning.

The seller & I verbally came up to 45,000- He wouldn’t do an L/C, but did agree to a 5,000 carry back. I told him I’d get back with him in 24 hours.

I redid the deal, on paper and still couldn’t make it work. The carry back was just a loan. I’d still have to get private money for the 40,000 & refinance if it didn’t sell. So I called him back and told him the truth. I had my atty draw up the papers including a 40,000 balloon note, due in 7 monthes. BUT - by now, the seller trusts me because I’ve been completely up front, professional & compassionate. 7 monthes doesn’t seem so bad, he’ll be rid of the property now and his only risk is that he’ll get it back in 7 monthes ALL REHABBED and ready to sell!

I have a private lender that will give me the 5,000 down and the rehab money.

Hope this helps,