ADVICE on selling house you’ve rehabbed - Posted by Judy Miller - American Note
Posted by Judy Miller - American Note on February 17, 2000 at 15:20:57:
Wow! Finding a house for $10,000, adding $7,500 in value, and getting a house that comps out at $70,000! Well, alright! Good going!
If you are interested in selling it with owner-financing, note investors don’t “believe” that such value can be added with so little. But you and I know it can be done. So what I suggest is that you meticulously keep receipts for all the work you do on the house, and the time of your sweat equity, if any, to make that house so valuable. Then when the question is asked by an investor, you will have an answer.
When reselling the property, your best bet is to sell for cash, with your buyer obtaining his/her own bank financing. You will always come out better.
However, if seller-financing is necessary because of a million reasons why either the house or the buyer won’t qualify, then, yes, you can sell the note you carry back at closing of escrow.
What a note investor will want to see is the sales price of the property, a 1003 Uniform residential loan application on your borrower, and run their credit. We will also want to see how much cash they can put down, and what they can afford in monthly payments. From this you will get a fair assessment of how much money an investor is willing to put into the transaction. From that analysis, you can determine if you want to just carry back a 1st and sell it all (pretty decent credit, pretty decent down payment), or whether your best value is in carrying back a 1st that you are going to sell, and then also carrying back a 2nd that you collect on. Read my posting a few days ago when I gave an illustration of a transaction where we sold a house to people with a small down and very bad credit, and how we structured a 1st and a 2nd.
The reason you would carry back a 2nd when the credit is not good is due to the investor wanting 2 things: 1) to have you share the risk and not take all your profit out at their expense, and 2) minimize their investment to value. While the CLTV or combined loan to value might be high, the investor primarily looks to LTV as to their own investment position.
If you would like some further advice on how to handle this, please feel free to contact me.
Judy Miller, President