Possible Deal...NEED ADVICE - Posted by Julio

import · November 22, 2000, 8:31pm

Posted by Julio on November 23, 2000 at 18:52:00:

If you have substantial knowledge on land trusts and would be willing to help me structure this deal, I would be grateful. PLease read my initial post and then BillW land trusts post. Thanks in advance to anyone who replies.

JULIO

import · November 22, 2000, 8:31pm

Possible Deal…NEED ADVICE - Posted by Julio

Posted by Julio on November 22, 2000 at 21:31:36:

Ok, here it goes. A single family (3bd, 1 ba)in a college and hospital area, FSBO. Seller stated that he may help with closing costs which meant he was willing to pay for a point ($800-900). The home was initially on the market for $85,000 but has been lowered to $81,000. It was appraised at $85,000 2 yrs ago when they refinanced. I saw the home today, it is in immaculate shape and actually listed in the top 5% as energy efficient (seller showed me the documentation). The seller is flexible, however, he has a mortgage on it for $77,000 (non-assumable), ($660/mo including taxes and ins). I proposed two scenarios, a L/O or a seller financing deal.

Scenario 1: (L/O)
The seller just bought land to have a new house built on it. The house will be built in the spring (2001) and completed by late summer early fall. They would do a lease option, if, they are allowed to stay in the home as tenants until they move to their new home. How would this work to my benefit as far as helping me with some down payment money? How can I structure this to benefit me considering the lease option may only be a year long? Can I charge the owners/tenants rent higher than their mortgage payment to a)cover any expenses, b) future down payment.

Scenario 2:

The seller would raise the selling price to $85,000. They take, let’s say 7,000-10,000 as a second mortgage and I get a mortgage for let’s say $75000-77,000. In this deal I would get a little money down deal but I’m not sure if I would get negative cash flow. The taxes on the property are about $1,200/year and insurance around $350.

I figure that for that area I could probably get around $800-1000/mo for rent depending on whether they are 3-4 college students or resident doctors, which are desperately looking for housing.

So any advice would be greatly appreciated. Also, if you think this is one to just walk away from PLEASE let me know!!

Thanks

import · November 23, 2000, 7:22am

Re: Possible Deal…NEED ADVICE - Posted by BillW.

Posted by BillW. on November 23, 2000 at 08:22:31:

Here’s an idea:

Reduce sale price by the amount of rent you would have collected for the time they wish to remain in the house. If it gets below the balance due on the loan, you will need to adjust the closing date to make things work. If they stayed longer,then they had to pay cash (rent) equal to payments and expenses (still usually less then fair market rent).
Put property into land trust, and take beneficial interest in the trust.
This locks sale price in now at balance of loan, and allows sellers to stay as long as necessary without worrying about what happens if their new house is not completed on time. (many are not.)
If you can show the sellers the advantages of this , you might be able to make a deal.
Advantages to seller:1. House is sold and problem cured. 2. They can stay in house as long as necessary and not worry that they will have nowhere to live if closing date does not coordinate with the finish of their other home. 3. Payments will not change for them.
Advantages to you: 1. Lower sales price. 2.Hopefully, property will increase in value during this time. 3. Mortgage reduction (small as it may be). 4. Plenty of time to find prospective tenants and or line up a buyer.
However, I agree that the potential profit is pretty thin. I don’t think I would put much money into this deal unless you want to be a landlord.
Good luck–BillW

import · November 22, 2000, 9:34pm

Re: Possible Deal…NEED ADVICE - Posted by dewCO

Posted by dewCO on November 22, 2000 at 22:34:58:

Not much profit in this deal. This creative stuff works better when you have a MOTIVATED seller, not just A seller. NEed to tighted up on what the rent income will be and allow some for expenses too. The LO most likely won’t work with the 4 residents scenario, and yes you can do all the stuff in #1, but sounds like you need to know exactly how LOs work. Read up on them here in the articles and archives.

Just because it is FSBO doesn’t mean they are MOTIVATED…but they may become so in a while.

import · November 23, 2000, 10:24am

Re: Possible Deal…NEED ADVICE - Posted by Julio

Posted by Julio on November 23, 2000 at 11:24:49:

Bill,
Thanks for the thoughtful reply! This sounds interesting, however, I have no experience in land trusts. How would I go about setting something like this up? I realize the profit on this deal is thin but there are some tax benefits, and also if I did go into this home, I would keep it to rent longterm. It is in great condition, with no repairs needed at this time. So, indeed I know this is a stretch deal and I would let it go if it does not work out. So if you don’t mind, would you educate me a little on land trusts deals.

Thanks,

JULIO

import · November 23, 2000, 3:30pm

land trust question - Posted by BillW.

Posted by BillW. on November 23, 2000 at 16:30:37:

Julio,
Please ask other exprets here about land trust details. They are far more knowledgeable than I am. Try Bill Bronchik and others.Also, check the homepage for how to info on landtrusts.
BillW