Posted by PBoone on January 24, 2002 at 09:27:00:
Figure your actual cost for the rehab (cosmetic) and remember that will be cash out of your pocket. Offer the seller to take over the payments thru a L/O but be sure to do it in person and get the signature then or the “freind” helping with the mortgage will get your L/O after you educate the seller
Pat
Motivated seller nearby - Posted by Artgirl (IL)
Posted by Artgirl (IL) on January 24, 2002 at 09:19:51:
Hi,
I stumbled upon a house the other day with FSBO sign on front lawn. It’s 2 minutes from my house and a NICE property-needs a bit of cosmetic work. It’s from 1920 and the floors need sanding and it needs a paint job to neutralize the seller’s idea of an artful (sponged) wall treatment in bad colors (beige and brown). I would tear out some carpeting as well and clean-up the underlying hardwood floors in a couple small bedrooms. Most of these are things my husband and I could do ourselves-probably get a professional to redo floors.
I am playing with the idea of buying this house and then lease-optioning it to a new buyer. However there seemed to be a consensus at the REI club I just went to that you can’t make money on a SFH in our area. But I’ve got this motivated seller on my hands and I’m not sure what to do!
Here are some facts:
-the seller listed it with a broker 5 months ago for $250K because they were in NO hurry at that time to sell and didn’t get an offer
-the seller is now in a hurry and is asking $215K but says THIS IS NEGOTIABLE-they based the price just below market and decided without a broker they’d come out ok at this price.
-the comps in this area for houses are about $225-$235
-the seller now has moved to a new house 25 minutes away
-the place is not actually rented for FMV rent. A friend is staying there and “helping with the mortgage” so whatever they are paying is no indication of real rent potential
-the seller is open to seller financing the DP for a “year or two”
This is not a big rental area and I am looking around all the local newspaper for comps to see what I can get for rent after I spiff the place up but most rentals in this area are in regular apartments and even those are few and far between. What do I charge for rent? I have learned from this board that I can charge more to the optionee if I can find one. Should I go to a broker for comps in similar house rentals? I hate to bring in a broker now that I’m dealing directly with a really flexible seller. Just looking for tenants (with no intention of L/O) seems like the wrong way to go-this is a very stable, settled area where people want to own their own homes. The school district is ok but not primo like some other nearby areas. It would be perfect for a family with children (big and spacious with attic and playroom) and a L/O. I am thinking about putting in a lowball offer ($175K) and see what happens. I think I could get this house in shape for $5K or less.
The seller will not finance the whole house just take back a note for part of the downpayment. This means I have to get a conventional loan for the rest. I don’t want to jeopardize my credit if I get a bad tenant. Is there a way around the conventional loan that I’m not seeing here?
I feel like I’m spewing. Any level headed directives on how to proceed will be appreciated.
TIA
Artgirl (IL)
Re: Motivated seller nearby - Posted by Brent_IL
Posted by Brent_IL on January 24, 2002 at 10:11:15:
The seller is in a new house so he doesn’t need money for a down payment. As you say, he’s also subsidizing the mortgage payment. Is he unwilling to carry the whole financing because he wants to retire the loan?
If you can find out the ultimate destination of the sale proceeds, you can custom-fit your offer.
Seeing as the seller is open to seller financing the down payment for a “year or two,” a L/O, or equity-sharing trust should definitely be considered. I?d feel better, personally, with four, five, or more years, but I would still do the deal for $5K. A resale after fix-up would free up some money sooner.
If the sold comps are $225-235, is its appearance the sole reason he hasn?t sold the house at $10,000 under FMV? Maybe $175K isn?t such a lowball offer at the present time.
Since the seller is in an accommodating mood, insist upon a substitution of collateral clause in the contract for the down payment note. Or, just use a promissory note (embarrassingly low, deferred, or illusionary interest, of course) as collateral and say, ?Sign here.? In addition to your fix-up profits you?ll have an unsecured low or no interest loan when you sell.