Re: Re Anybody have an idea on how to make this work - Posted by Ed Garcia
Posted by Ed Garcia on February 13, 2000 at 01:27:06:
There is an old saying that say’s, FIGURES DON’T LIE, BUT LIARS CAN FIGURE.
what were saying is We can make these figures dance. We can make them do what ever we want
them to do.
So with that in mind, I’m going to help your daughter get this house from you and make you feel good
Now Mike your current costs on this house no matter who you sold it to are,
$8,500 Back Taxes.
$3,000 Attorneys fee.
Total $11,500. ?.. That’s carved in stone.
$9,000 Fix up?. you said between 8 and 10 thousand, so I hit it in the middle.
New total, $20,500.
Now if you listed the house with a realtor for $85,000, they would charge you 6% to sell it for you.
That’s $5,100. You mentioned that the house in fixed up condition would be worth, between 85 and 90k.
Now Mike, were talking about your daughter, that 5 year old grandchild and the bundle of joy that
just arrived that has your blood running through their veins. Remember if they are going to pay
full retail, then why do they need you. They can buy a home anywhere for full price.
Their coming to you for help.
Now I know you want to do the right thing, that’s why you’re here to ask us to help you establish a
price that you think is fair for your daughter as well as yourself.
If you sold this house to Joe Blow, and by the way, Joe may have wanted a discount because he was reading on creonline how you should buy houses below market.
But lets say old Joe is easy and will pay $85,000.
After the cost that I just gave you not including your share of closing cost, here’s what you have.
$85,000 - cost $20,500 = $64,500 - realtors commission of $5,100 = Net $59,400.
So when the smoke clears on a full retail deal, you’ll clear $59,400. Anything you take off of this
Figure is where your generosity for your daughter truly begins, so you tell me.
I think for now I’ll let you dwell on what you want to do for your daughter, that’s a personal thing
between you and her. But please keep in mind that you inherited it from also a loving family member.
On this I’ll say no more. If you want to e-mail or talk to me personally you’re more than welcomed to.
But now lets see what your daughter and her family need. They need a place they can call home and to
pay about $750.
Mike the two things that have to be paid are the taxes and the attorney.
Mike, we haven’t talked about your daughters credit? We haven’t discussed if she has any money down?
I’ll tell you what. I’m going to be a devils advocate and say she has bad credit and no down.
Lets forget about everything and look at this from another angle.
In today’s market, someone with A,B,C or D credit can borrow against the house and pull cash out of this deal if they refinance it. It’s just a matter of how much and at what rate.
If your credit is A, B, or C, your good for 75% LTV. You state that the house in it’s present condition is valued at $75,000.
75% = $56,250 subtract the taxes and attorneys fees of $11,500 = $44,740
Payments on $56,250 at 8 ½ % are $432.56, that’s not PITI.
Now you’ve refinanced it with a loan in place and owe $56,250.
We both know that the house still has not been fixed up, which would be another $9000. to get it to market
Mike lets not fix it up. Why spend $9000 to fix it up to only increase it that amount, then what’s the point. Lets let the kids fix it up over a period of time and build up some sweat equity.
I’m going to throw some numbers together that might work for everybody.
She’s your daughter, lets sell it to her for $80,000.
We didn’t do the work, so lets take off the $9,000 giving her credit to do the work later.
We now have a balance of $71,000. Lets split the commission on the $80,000 which would be $4,800 divided by 2 = $2,400. take that off of $71,000 = $68,600.
Lets wrap the first of $56,250 into a new loan that you will carry for 3 years of $68,600.
So now you have a wraparound loan of $68,600 for 3 years at lets say 9% interest only, which would
give her a payment of $514.50. per month. She will then pay the taxes and insurance.
At this point you have paid your back taxes, paid off the attorney, and pulled $44,750 cash out of the deal.
She still owes you $12,350 which if you ad that with the $44,750 you have already received. You’ll net
$57,100. and you have a positive cash flow of $81.94 for 3 years.
In 3 years if she works on her credit, and fixes up the house, she should be able to get a decent loan to pay off your loan netting you $57,100 pretty close to what you would have netted if you would have sold it for the full price. Meanwhile she has a payment she can afford, bought a house with no money down, has
write off, and re-established her credit, thanks to you.
If she already has good credit, I have other ways to do this deal.