Need Help Evaluating Creative Finance Offer - Posted by Brian(IN)


#1

Posted by Paul Macdonald on October 28, 1998 at 20:34:20:

I wouldn’t do this deal the way its set up. For a lot of reasons:

  1. How would the investor take title when you do and than lease option from you? Sounds like you’d be swinging in the wind,
  2. If you do a lease option with this investor with a mortgage you’ve just received with a break even cash flow, you’ll have a qualifing negative cash flow for future deals. That makes it that much harder for you to qualify to do your next deal.
  3. If you are going to “wholesale” it and FMV really is that much higher - do it for cash. Or a positive cash flow. This investor of yours wants you to finance the deal, take the negative for qualifing cash flow, receive no interest on your money - but allow him to get a positive cash flow, AND get full benefit of the difference between your contract sales price and what he sells it for to the leasor. I’ll bet you a dollar to a donut hole the contract purchase price he offers to his tenant will be higher than what you are considering as 100% FMV.
  4. And what

#2

Need Help Evaluating Creative Finance Offer - Posted by Brian(IN)

Posted by Brian(IN) on October 28, 1998 at 19:11:30:

I have a potential rehab under contract and have contacted several of the “I Buy Houses” ads to see if I can wholesale it. I got a potential offer with the following perameters.

I take out a new mortgage that will give me my asking price. This mortgage would be about 80% of fair market value. The investor who is making me this offer has a lender who will do this. I then “give the payment book to him”. I think he means create a note to him for the same amount as my mortgage. This note would be a balloon with no interest and no payments for approximately 3 years. The investor wants to take title when closing with me (possibly simultaneous closing for me ?). The investor would then lease option the property and make the mortgage payments. After 1 to 2 years of steady payments by the lease option tenant he has a lender that would finance the deal for the lease option tenant. Thus the investor makes the overage on the monthly payments and collects the equity in a few years.

This is a no money down deal for this investor and I seem to be financing the deal.

Q’s

  1. Would this be a wrap around mortgage?
  2. Is my collateral still this property or should I ask for other collateral?
  3. How do I protect my credit if the investor does not make payments? Should this be set up in escrow?
  4. Does this seem like a good deal?