HELP!!! Can anyone suggest a way to finance this deal? - Posted by Sophie

Posted by Judy Miller/American Note on June 09, 1999 at 16:52:59:

Sophie: There are some variables/unknowns here that could make a difference in whether there is a way to work out this transaction.

The Seller wants $42,000. Will he take any less to move the property “as is” quickly? Usually a Seller will if motivated enough. The less amount of money you have to put into the transaction, the less the variables could weigh against you.

Let me provide you a hypothetical. If the comps in the area are so good, then perhaps based upon square footage, etc., the house could be valued at $55,000. Cosmetics are not the determining factor in setting the appraised value of the house.

If then your purchase price to the Seller was $55,000, and the Seller agreed to carry back a private mortgage for $50,000, structured at 12% interest, amortized over 20 years with a ballon in 10 years ($38,373.14), this would leave you monthly payments of $550.54 on the $50,000. You could receive a “fix-up” credit for the $5,000 downpayment, and would need to provide some proof that you intended to fix the house up with your own sweat equity and money to fix it up.

What we then have is a sale at $55,000, $5,000 credit for “fix-up”, and a $50,000 note that you have to pay over the next 10 years. That gets you into the property with no cash down except your commitment to do the fix-up work, and we would purchase that $50,000 note from the property seller (even at closing as long as some of the work had been done) and pay the Seller $42,000 for the purchase of the $50,000 note he is holding.

The issue of your credit IS relevant, your experience with rentals and repairs, etc., as well as where the property is located (city/state).

This is a very BROAD BRUSH scenario and not to be relied upon, because we don’t know enough at this point, however, it will give you some food for thought!

Best Wishes, Judy

Or the sales price could

HELP!!! Can anyone suggest a way to finance this deal? - Posted by Sophie

Posted by Sophie on June 09, 1999 at 14:58:13:

First off, I’am rather new to the world of creative real estate financing, (translated: babe-in-the-woods), although I have been doing a lot of reading, (this board, Carlton Sheets, Joe Kaiser, etc), studing of neighborhoods, and I bought a duplex, on a FHA loan, less than six months ago.

My question is this: I found a wonderful 3/2/1 in a great neighborhoods, it’s below market value, owned by another investor who needs his money out of it, and it needs a lot of work to bring it up to a rentable state (i.e., carpet, tile work, paint). I don’t want to fix it and flip it: I want to keep it as a rental property. The house is on the market for $42,000 (in it’s current state) and I feel certain with the needed repairs done, it would appraise for about $55,000 (give or take), the other houses on the block would appraise for more, because of their extra square footage; in addition, I’m sure it will rent for $650 to $725 with the repairs done (it’s a nice neighborhood, close to everything, only one other rental house on the block, the other houses are increasing in value at a steady pace, and there are very few other houses on the market in that area). I don’t have any cash to put down on it, although I can pay for the repairs if needed on a credit card (I’d really rather not) and do most of the work myself (I don’t mind doing sweat equity). My credit is good, although my debt to income ratio is running on the high side. The investor-seller said he would work with me on raising the “asking price” to off set the down payment, but I’m not sure how this works. I’ve read of other scenarios like this but I’m unsure of just how the mechanics work.

Ok…how can I get this financed, possible get extra cash out of the deal to pay for the repairs, and not have to come up with any cash on my own? I welcome any and all suggestions, just go slow, and give me detail steps. Thanks in advance for the help. I really could use some answers today.

Re: HELP!!! Can anyone suggest a way to finance this deal? - Posted by Irwin

Posted by Irwin on June 16, 1999 at 07:09:24:

When an investor “just needs his money out of it” he should be willing to take what it cost him (maybe a couple thousand profit) and go on his way. It’s hard to believe that he paid $42k for a house that needs repairs to get it up to $55k. I’ll wager his cash in the deal is much less than $42. If you negotiate a true investor’s purchase price, you should be able to find hard money, or other financing to take him out.