Posted by Mike (MI) on October 13, 2003 at 11:23:04:
Another option:
This is based on the owner having good credit.
Have him re-fi the house for 185 (80% ltv based on appraisal of 230).
He uses 10K to fix the property and takes the rest for down payment on the other property.
You take over sub-2 and sell on L/O with 3% down and purchase price of 240K (or whatever floats your boat).
He gets his money, you get a house at 80% ltv with no money down. You would have to be able to lease it out for at least break even or better.
Good Luck,
Mike
killed another first deal? - Posted by Stephen Ford
Posted by Stephen Ford on October 11, 2003 at 21:27:49:
Got lost today going to a real estate seminar and ended up on a nice street with some nicely kept houses. Spent 30 minutes driving up and down the street/getting out of my car a few times/talking with people when someone waved me over to ask if I was interested in buying a house.
He explained he wanted to get the *&^% out of the area because the taxes were getting too high and he had an hour drive to his new job. He said the house was worth $235 and had the apprasial from 2 months ago to prove it. He wants $175K and to buy closer to his job. He said he wasn’t nuts but just wants out but won’t go below $175 (he owes $75K so I guess he likes the idea of walking out with $100K).
The place has new copper plumping, wiring, heating/air. Roof was installed 10 years ago. Needs painting done to the outside and window fixtures replaced. Also needs a driveway and enough concrete FOR a driveway removed from the back yard. All orignal plaster inside the home which looks great (they smoke inside so I’m concerned about that).
I made the mistake of opening my mouth first on terms. I said I could get him what he needs in 30 days and what he wants in a year. I’d give him $125K to pay off the mortgage and for the down payment/moving to his new house and pay the $50K in 12 months (I know, I know. Should have said 3 years).
With these terms, could I whole sale this property for say $185K. I’m sure he would pay the first 2 months of payments also. Even with a VERY generous figure of $10K in repairs there is $40K profit here.
Last sticking point, he has to have a place to move into before he leaves his place but wants to have a contract so he knows his house will be sold ASAP when he finds another house.
Re: killed another first deal? - Posted by Eric - GA
Posted by Eric - GA on October 12, 2003 at 08:21:32:
Did you see the appraisal? Most people’s idea of an appraisal is having a realtor come out and tell them what they’d try to sell it for. Besides, you shouldn’t really ever trust an appraisal anyway. You should run comps yourself and come up with a price that YOU ARE COMFORTABLE betting on selling the house at.
Also, although the profits sound big ($10K for you and $40K for whoever buys it from you), the margins are really really small. What if its not a Buyer who sees your sign…instead its an agent…who has a client who wants the house, but they want their 3%, and for you to pay 3% closing for their buyer. Now you’re down to $173,900…more than you paid for it…and that was on a FULL price offer. What about the person you say is going to buy it from you for $185K, put $10K in it and sell for $235K. Chances are 90 to Nothin’ on a house like that you’re going to have to list and sell through an agent, plus closing costs…typically 10% all together. So, if they get a full price offer at $235, they only walk away with $211.5 - $195 = $16.5 (Not including payments, taxes, insurance, utitilities, contractual repairs, etc.) I say best case they walk with $10K. So, great, you spent $50K to lose $1K and they spent about $200K to make $10K. And that’s if you and them sell for FULL PRICE. I’m sorry, but both of you could spend your money in much better ways. (Invest it with me).
Re: killed another first deal? - Posted by michaela-ATL
Posted by michaela-ATL on October 12, 2003 at 07:10:42:
Stephen,
You have to work backwards: Who would you be wholesaling this to? An investor? at 195K (incldg 10k repairs), that would be 83% (if 235K is a valid appraisal. A seller’s appraisal doesn’t mean a whole lot. In Grant Park a brick bungalow with the same bedrooms and baths and sqf will be the same value on paper, but won’t get near as much as a framed victorian)). I can’t see any investor buying this. It just takes too much money for too little potential return.
An end buyer? You know the market here is very, very slow. Most houses don’t sell for asking price. there’re a ton of hosues on the market. If you promise to get the funds within 30 days, how would you do that? You would have to get a contract now in order for a normal retail buyer to close in 30 days. That would not be the likely scenario.
Lease/option? You would not likely find someone to put down 50 or 60k for the option to buy the house sometime in the future.
Have you wondered why he got an appraisal 2 months ago? Normally people don’t get one, unless they’re refinancing. Did he try and got turned down? Who was the appraisal made out to? Him or a mortgage company? Did you drive by the comps and compare them? Maybe he can’t get a refi due to a new job? Ask him why he got the appraisal. Maybe he’s been trying to sell on his own and hasn’t been able to.
You need to do your own comps and then renegotiate the price to make it work. If you’re trying to sell it to an investor, then keep in mind, that most might use hard money and won’t get more than 60-65% for purchase, repairs and closing.
Maybe you can do this a ‘sub to’ with cash 2 years down the road? Or a sandwich lease/option?
Re: killed another first deal? - Posted by Stephen Ford
Posted by Stephen Ford on October 12, 2003 at 16:35:13:
ARGH. I had done the numbers in my head and was at $20K profit for the buyer, which is slim I know, but forgot about holding time and closing costs. Must do things on paper :-/
Oh, and yes I saw the appraisal myself. He had it done so he could sale the house himself.
Re: killed another first deal? - Posted by Stephen Ford
Posted by Stephen Ford on October 12, 2003 at 16:44:17:
You nailed it on the head, I didn’t work backwards on this one.
He is open to sub to but needs enough money for a downpayment on his next place. He said he’d take $75K in that case. Would he still be able to get a loan since the debt is in his name while I have a contract to make the payments?
I was also thinking, from an investor point of view, is they get a 0% $50K loan for a year on the deal.
I got an offer of intent to purchase signed today and will see what people think tomorrow night. As for a deal, I’ve run it by two people who think it is a good retail deal but like eric said, the margins might be too thin for a whole sale :-/