Re: Sandwich L/O Need Advice Johnboy? - Posted by JohnBoy
Posted by JohnBoy on April 01, 2002 at 13:26:34:
If you don’t have the means to make the payments on this while the property sits empty or if you ended up with a tenant/buyer that stopped paying then the last thing you need is to get involved with a deal like this where you will remain in the middle. You just don’t have the reserves to cover yourself should something go wrong. Based on your post it also sounds like this is a higher end property that is priced above the median priced homes in the area which means it could create much longer holding costs finding someone that can afford a property like this which adds all the more risk on your part. So remaining in the middle on this would not be an option for you. You would need to get in and get out with a quick profit!
The seller is saying he wants to be able to show the bank he’s getting a higher payment to off set his debt ratio and is willing to just kick back something on the rent. Not a good idea!
If the seller needs to show the bank a higher payment and his goal is to off set his debt ratio then here is the way I would handle it:
I would explain to the seller that just renting the property out or doing a L/O that the bank will only allow 75% of the rent to be counted as income. Which means the other 25% is going to be counted against him as additional debt which may affect his debt ratio to much. He won’t be able to get 25% above his payment amount as rent to off set the difference.
So instead the way to go on this would be to sell it on a contract for deed. If he sells on a contract for deed the bank will allow 100% of the payments from his buyer to be counted as income which would off set his payments being counted as additional debt and wouldn’t affect his debt ratio to qualify for the other loan.
Then I would write up a contract for deed that is assignable and make the deal subject to me first being able to find a suitable tenant to place into the property. Which means until I find someone we don’t close the deal and the seller continues to make the payments until you are ready to close in 60 - 90 days.
Then you can write up the contract for deed to where it would mirror his payments that the buyer would have to pay on the contract.
Then run an add in the paper something like:
JUST TAKE OVER PAYMENTS!
$10k down moves you in.
NICE 3100 Sq Ft Executive Home
Then find a buyer with $10k to put down and assign your contract to them taking the $10k as your assignment fee.
Your risk is the advertising cost to try and find a buyer.