Posted by B.L.Renfrow on March 21, 2000 at 20:02:38:
I’m concerned about your statement, “Selling price to be either $125-130K…” Before you sign a deal with the seller, you MUST have the option price nailed down. If you haven’t already, it’s vital you run some comps to get a clearer idea of FMV. What’s wrong with having the option price the balance of the seller’s mortgage at closing? If the sellers are divorcing, can’t make the payments and are delinquent on taxes, they ought to be pretty motivated! Likewise, why pay the seller $7000 at closing? That could be a large portion of your profit. And where did you come up with $1008 for “walking money”? I wouldn’t offer that either. If the seller is asking for all that, I’d say they’re not quite motivated enough yet. Maybe they’ll come around after a couple more payments are due.
Also, if the monthly payment of $1175 includes PITI (principal, interest, taxes, insurance) as you mentioned, then how did they come to miss a tax payment??
Otherwise, it looks do-able. Just be sure your market will support a monthly rent payment of $1500-$1600. Here’s what you might offer, if you’re determined to do a L/O:
Option price: balance of mortgage loan at closing
NO option consideration/walking money/etc from you
Your rent to seller: $1175 monthly
Get T/Ber in on a 12 month term with option price of $125k.
Option consideration from T/Ber to you: $3-6k (I think $7k would be pushing it.)
T/Ber’s monthly rent: $1300-$1400 (or more, if market will support it), with the rent credit you mentioned.
Doing it this way, you’ve got NO money out of pocket up front except for the delinquent tax payment, you get a decent option consideration from your T/Ber, monthly cash flow and a good back-end profit.
Now, having said all that, I’d be especially careful doing a sandwich L/O in a divorce situation. People have a way of disappearing under those circumstances, and might not be around when you are ready to exercise your option. You’d need to have all the documents executed up front and held in escrow, so you don’t get stuck unable to perform if YOUR T/Ber decides to exercise. Also, if they’re in financial trouble, make sure your payments go to an independent third party, NOT directly to the sellers, so you can be sure the underlying mortgage payments are made.
If those sellers are truly motivated, you might be better off forgetting the L/O and try to structure a deal which will get you the deed.