How would you proceed? This is my first.... - Posted by skillet (AR)

Posted by JohnBoy on February 17, 2002 at 02:54:43:

Based on how you are proposing to do this deal, I have only one question…where’s the deal???

You are talking about getting a new loan in your name that you will be liable for just to break even up front when you get a tenant/buyer and settle for only $100 - $150 per month in cash flow. That doesn’t justify the risk.

You said he has a private note that needs to be paid. Is that note secured against the property? If it is then that would have to be paid off before your lender would fund your loan. Either that or your lender will require the note holder to subordinate in order for your lender to have 1st position on their loan secured against the property, which also means you will have qualify for those payments in addition to the payments on your new loan as far as your debt ratios go.

Based on your numbers the seller wouldn’t be getting any cash from this, so why even bother with trying to get a new loan?

Instead, just take over his payments on his loans! Buy the property “subject to” his existing loan.

This will save you from having to put out $6k from your pocket and allow you to keep your buyer’s option money as your profit!

You would own the property without any personal liability on the loan since that remains in the seller’s name!

How would you proceed? This is my first… - Posted by skillet (AR)

Posted by skillet (AR) on February 16, 2002 at 22:12:31:

…deal. Any thoughts on what I lay out below are appreciated.

This is a long post, but if have time to look through the numbers I am asking: Would you do this deal like this?

Seller is asking 139,900. This is in the low range for comps in the area. He has had the home lease/optioned for the past two years to a couple who can’t afford to exercise the option. They will most likely be moving because they also can’t afford more rent. Home is four years old in a growing area, and is in good condition (probably will require cleaning, carpet stretching, maybe paint inside).

Seller has a first with a balance of about 112,000 and a private loan with a balance of about 20,000. He is flexible and willing to “help” me if needed.

My thoughts: Offer him $137,000, which ultimately extinguishes his debt. Finance 80% (109,600) through conventional channels 30 year note, payment (P+I) will be around 700/month. Seller carries a note for 24660 (20% of sales price less 2740 in his pocket to get his first paid off) at 8% interest, amortized over 30 years with a five year balloon (pmt is about 181). Total monthly to service my principle and interest payments is about 881.

Now, at this point, he’s still paying on his private loan, he’s got 2740 in his pocket, less his closing costs, and I’m paying him 180/month. I’ve got control of the house with 2740 out of my pocket, plus my closing costs (maybe 2-3k?). I get the people moved out ASAP and go for a close for 60 days after that time. Get a set of keys and start showing it!

My price: Offer L/O at 160,000, min. 4800 down (but let the buyer name the number) plus first month’s rent of 1200. Or to qualified home buyer, I could sell it for 155,000.

Here’s a summary:
Buy at 137,000
My total pmts 881 P+I.
Cash out of my pocket at close: up to 6K.

L/O at 160,000
Rent is 1200
NROM is min. 4800, plus first month’s rent due at close.
Cash in my pocket at close: 6K.

Net cash flow/month should come in around 100-150 after taxes and insurance. There looks like there is room to work in this deal. I know this is long, but any suggestions are welcome!

Thanks in advance,
skillet (AR)