Input on Plan of Action - Posted by OHSteve

Posted by Redline on March 15, 2001 at 11:58:53:

Jim: Have you been able to work out a deal for yourself? Reason I ask is … I’ve heard you talk about seasoning alot (it’s an issue here as well) but I never heard you mention a possible work-around until recently. Didn’t think it was possible.


Input on Plan of Action - Posted by OHSteve

Posted by OHSteve on March 14, 2001 at 13:33:02:

I recently attended Bronchick’s lease/option workshop (highly recommend to those who haven’t) and am trying to find motivated sellers to apply the principles. My problem, however, is that I work a FT job and as far as I can tell marketing, etc. (doing things to find motivated sellers) takes time and should not be taken lightly…it is hard for me to put forth this time b/c of my job (that is until I get the moxy to walk away!). I have some “cash” (equity lines) I can get my hands on if need be and therefore am considering the following process:

  1. Finding potential “rehabs” (not major…just 5k or so needed in cosmetics) from agts that I already have relationships with.
  2. Paying “all cash” (home equity, etc.) to get a discounted price.
  3. Perform the needed updates.
  4. Get a new appraisal and 1st mortgage on property with 80% LTV.
  5. Pay off home equity, etc.
  6. Find tenant buyer to lease/option property.

Does anyone see any positives/negatives to this plan? As an example: if I find a property listed at 30k with comps of 60k (after fix-up). I buy for “all cash” for 25k and put 5k into it. Get an appraisal for 55k (conservatively) and take out a loan for 44K (80% LTV). Pocket 14k (tax deferred until tenant/buyer exercises option) minus mortgage closing fees after paying off 30k “cash” debt. Payments would be at/around 354 (PI based on 30yr/9%). Lease option at 2,500 down and 600/month with 1-200 rent credit.

Any input?


Re: Input on Plan of Action - Posted by JPiper

Posted by JPiper on March 14, 2001 at 23:23:58:

I say the problem with your idea is that it doesn’t reflect the typical 12 month seasoning requirement that lenders have. Because of this requirement, the lender will lend on the LOWER of the purchase price (plus repairs) or the appraised value. You may be able to work a different deal out with a bank if you can establish a relationship…something to think about.


Re: Input on Plan of Action - Posted by LeonNC

Posted by LeonNC on March 14, 2001 at 21:13:56:

It sounds pretty good to me. That’s pretty much the way I will buy a house if the deal is good enough. I’d prefer to get the seller to hold the financing or buy it subject to the existing mortgage if possible. That way I only have to pay for the repairs before I get it refinanced.

I guess you can get the cash back for anything under the 80%LTV?

Here’s something I’ve been thinking about. I’m not sure which strategy would be better. Buying the lower end properties fixing them up or just working in the pretty houses. You are going to have holding costs and money going out. Repairs and holding costs with the fixers and mainly holding costs with the pretty houses. The fixers have got to be more work and management intensive than the pretty houses. But, there’s probably more risk in holding pretty houses. Meaning the amount of mortgage payments owes every month.

For me to be able to buy houses and do repairs I pretty much have to get a bank loan on the house after repairs. Regardless of how I buy it. I need the money back. With the pretty houses there’s not much time involved with repairs. Therefore a bank loan may not be required to hold the property. This is something I’ve been thinking about. I like the idea of controling property without ownership. That being said I’m still working in the lower end. I’m not sure rents will produce a positive cash flow in the pretty houses. Just bought my fifth house and it’s FMV is the highest so far…high 60’s.

It sounded like you were thinking along the same lines as I am so I thought I’d babble a little to tell you what I’ve been thinking.

In the Zone