Posted by Brad on April 23, 2007 at 12:16:49:
In TX, they passed a law severely limiting Lease Options. I think you can do them very short term, possibly 6 months, but too many people were taking advantage of the Tenant/Buyers and keeping their option money without allowing them to purchase the house or raising the cost of the house artificially when they were ready to buy.
You can look up the actual ordinance/s and laws on google.
Looking for Ideas on Contract for Deed deal - Posted by Brad
Posted by Brad on April 21, 2007 at 17:21:32:
Thanks in advance for your help and suggestions.
Ok, here’s the deal:
I have a Buyer who can’t qualify to buy her house on her own, but has a sizeable amount cash for a down payment. I am going to buy a house and sell it to her on a contract for deed and am looking for suggestions or ideas of how to make this deal work better. I have not done any contract for deeds previously.
It is in TX, so can’t sell it on a lease option. The house we are looking at buying is around $175K and is new, so there is not much of a discount on the front end (just some builder incentives etc.). So, the profit is in the cashflow and possibly the backend.
The Buyer has 10% to put toward the property, so there shouldn’t be any money out of my pocket, just my signature and liability for the fininancing. The benefit to me is the cashflow and a backend profit, with no money out of my pocket.
Summary:
Buyer has 10% down payment ($17,500)
House - $175K (after $30K Builder discount)
Buyer can pay up to $1,650 piti
I was thinking of getting a short term loan 3 or 5 yr arm, interest only, to maximize the cashflow, and also maybe split the builder discount with her and get $15K on the backend. Again, remember, there is going to be very little, or no money out of my pocket, just the liability.
How would you work this to maximize the profit and benefit?
Thank you for your suggestions.
Re: Looking for Ideas on Contract for Deed deal - Posted by Max-Va
Posted by Max-Va on April 22, 2007 at 17:00:34:
Brad hold on here.
First you are buying a property as Non owner occupied, Interest rates will be high.
Second, You won’t have a homestead exemption and taxes will be high on investment properties.
Third, If you buy at market value today. Where is the backend next year or the year after that?
Fourth, I seriously doubt it will cash flow at $1650 per month. I did not work the numbers but I feel you might be negative by about $200
Re-think this and re work the numbers. It seems to have no upside
Re Ideas on Contract for Deed deal-Why - Posted by ED
Posted by ED on April 22, 2007 at 16:32:05:
Why can’t you sell on a lease option in Texas?
Re: Looking for Ideas on Contract for Deed deal - Posted by Colin Bochicchio
Posted by Colin Bochicchio on April 22, 2007 at 02:21:48:
Brad,
I have some creative financing ideas for you to consider so forward me your email and I can get back to you.
There are ways you can protect yourself in this deal.
MY email is coltrust07@gmail.com
Re:Contract for Deed deal - Posted by dealmaker
Posted by dealmaker on April 21, 2007 at 19:28:48:
I quit doing CFDs in TX about 7 or 8 years ago, I just do straight up sales, WD, D of T, Note. But if you’re financing your purchase that’s out.
Your buyer is pretty picky for someone with not much money and bad credit. I wouldn’t buy a new house, and I wouldn’t do an IO loan. I probably wouldn’t do the deal now that I’ve thought more about it. Unless it’s a house that YOU REALLY WANT.
dealmaker
Re: Looking for Ideas on Contract for Deed deal - Posted by Brad
Posted by Brad on April 24, 2007 at 03:31:24:
Max,
Actually, the interest rate should not be that bad, especially since I am going to do a short term interest only loan. I just bought a similar house in the same area, with a rate of 6.25% as an investment property. Since this is a short term deal, I want to pay as little interest as possible.
It will cashflow, approximately $150-$200 per month.
$174K purchase price
10% down
$815.63 =$156,600 loan (90%) @ 6.25% 5yr interest only
$120 = estimated PMI
$410 = estimated taxes
$125 = insurance
$1,470 / month piti + PMI, no management fee
Buyer will pay me $1,650/month
Estimated cashflow
$1,650 - $1,470 = $180/month
These are pretty close actual #'s from another similar house I just recently closed in a similar area, except that one was about $8k more, so these estimates are probably a little high, but not much. And actually, since this is a new house, the property taxes are stil based on raw land and won’t get reassessed til next year, I believe, so the taxes should be considerably lower, possibly by $250 to $275/month, which adds to the cashflow. This is how it was on another new house I have in that area, which is a similar deal. Also, she will start paying me when she moves in, and my payment won’t be due til the following month, so I get the 1st months payment as all cashflow.
I spoke with the potential Buyer yesterday and came to an agreement. Here is the deal in a nutshell.
She is putting up the 10% down payment + closing costs, so there should be nothing or very minimal out of my pocket. Now there are about $30K incentives on this house, it is a new house and the builder is offering this incentive for the past weekend, so I decided to split that with her, in the sense that when she finances me out of the loan, I will get $15K on top of the loan amount. In other words, she plans on attempting to buy the house within the next 12 months and when she does, my backend profit is $15K. After 12 months, another $2,500 is added and after 18 months, another $2,500, etc. So, if it takes her 13 months to get financing, then my profit is $17,500.
So, she pays all the costs to acquire the house, I qualify for the loan, and sell the house to her on a contract for deed as an aitd (wrap), or I may do a PAC-trust (I need to review those materials and call those guys up), there is no upfront profit or costs to me, some moderate cashflow, and a good backend profit within a reasonable amount of time. My only risk is my signature on the loan, although she will be motivated to fulfill her obligations, since she will have 10% + closing costs invested up front. If anything goes South, I pay the costs to get her out of the house, and should still have equity, assuming this new house isn’t ripped to shreds. All in all the risks seem minimal compared to the profit with no money involved. Profit percentage is infinite, if all goes well.
So, the profit potential could actually be
$180/mth cashflow
$1,650 one time (Buyer’s 1st pmt to me, before MY loan pmt is due)