Posted by Michigan Andy on February 19, 2002 at 13:11:21:
Dave-
You’re in a decent market there in Spartan land. My mother-in-law lives there, and sometimes consider doing some deals there myself.
Anyhow, your deal. Why don’t you ask seller to carry the entire thing as an installment sale. Find out what his mortgage balance is, and see if he will consider refinancing it himself. He should be able to get 80%LTV on a cash-out refi (or $38,400), and he can pay himself. Sign a land contract before he closes on the refi for himself to keep, or better yet, do a subject-to, after he refinances. He gets his cash, you get your property, and keep fully intact your great credit score.
NEED HELP structuring first deal - Posted by Dave(MI)
Posted by Dave(MI) on February 19, 2002 at 10:14:22:
Seller has 2/1 SFH with FMV of 48K. Price is 35K firm. Needs about 3,000 in fix up costs. Seller needs at least 10K at close and will consider carrying balance.
Property would rent for 550/mo. How can I go about structur
ing deal so I can realize PCF of 80-100 mo? I figure taxes at about 80/mo and vacancy rate of about 7%. Should I approach hard money lenders for 13k (down payment and fix up costs) and have seller carry back balance?
I’m 21 years old with good credit(750). Should I pursue conventional financing thru mortgage company? I don’t have any provable income and could come up with about 2,000 if I have to.
Am I on the right track? Are there other more advantageous ways to look at this deal?
Re: NEED HELP structuring first deal - Posted by JamesL
Posted by JamesL on February 19, 2002 at 15:14:04:
Hey Dave,
I’m new at this too, but these things might help. With such a good credit score, you should have no problem whatsoever getting the cash you need. Call 5 mortgage brokers, and ask them all about “no doc” loans that have no income verification. Do not tell them you have $2000 to put down, instead tell them you want a no money down loan, and the closing costs put into the loan. Try to keep as much cash as possible in your hand. I know from personal experience that it is possible ( atleast in Ohio) to get this type of loan with pretty much a credit check and a signature with a credit score of only 631. Don’t give any broker your ss#, or let them check your credit, or sign anything with them until you find the one who will get this done for you. If your credit score was 549, they would be in charge, but with yours, they know you can get the money pretty much ANYWHERE, and they will want to make money from your origination fees, etc. Also, with some of the smaller brokers, you can easily negotiate the price on closing costs. They are used to dealing with customers who have bad credit, and some will try and charge $5000 to close a single family house! You should expect to pay $2000-$4000, but make them finance that too. Remember you are in control. if the broker won’t play ball, go to someone else. They usually work on a LTV percentage, and if you are only borrowing 15k (13K + 2k closing costs), you can do it with no money down. Don’t let anyone tell you differently. Remember that even with a no money down loan, you will need to bring some cash to the closing for prepaid items, etc. Plan on $1500. The interest rate we got on this type of deal was 9.5%. , Use the following figures as examples:
Selling Price: $35000
Owner financing $25000 (180mos/15% simple- $159.72)
Loan Amount $15000 (10k/owner, 3k fixup, 2k/cc)
Yearly income $6600 (550/mo)
Less: P+I -1884
taxes - 960
7% vacancy - 462
insurance - 500
seller fin -1917
= 877.00
divide by 12
$73.08/mo
Ok…next, there are a few questions that need to be asked. Is $73/mo (16.99/week) income enough money for you to go through all the trouble of advertising, showing the house, qualifying the applicants, maintaining the house, landscaping, collecting the rent, writing the checks, doing evictions, etc? What if the dishwasher breaks down…where is the money going to come from? What would your reason be for renting it out? Who will do the work? Is the $3000 for repairs including labor?
This could turn out to be a great deal, but you might look at other avenues besides just renting it out conventionally. After it’s fixed up nicely, perhaps you might find a family that will lease the property from you with an option to purchase. For example, you might get $2000 option consideration from them, a $300 security deposit, and charge them $615/mo. That will get you some cash in your pocket for maintenance emergencies, more PCF per month, and they will probably take better care of the property if they intend to excersize their option to buy. You could pre-set a price…say $54,700, and give them a 24 month time period in which to excersize the option. If they choose to move out and not buy, you return the $300 sec. dep. and keep the $2000 option consideration they paid you. Simply find another family to do the same deal. That makes you an extra $1000 per year!
Or, if they choose to buy your property, you end up making $1560 in PCF over 24 months, and then a $16,700 pre-tax profit on the sale of the house.
Just a thought. Go through the how-to articles on this site, and read everything you can find about lease optons. Some of my personal favorite contributors to this site are JohnBoy, and Bill Bronchick. i have learned TONS from their writing. Look up lots of their stuff in the archives. I welcome any ideas and criticism from all other investors.
You can make this deal happen!
Happy Investing.
JamesL