Rehab then sell on owner finance

[stevie-o]

Not sure if this is in the right room, but let me know if this looks okay.

I'm a mortgage broker so occasionally I get a client with terrible credit but tons of money to put down. I had one call recently and said they have $30k they can put down on a $60-70k home.

So here's what I am thinking:

Buy a home that needs rehabbed with cash- $40k
Rehab costs - $8k

Sell to buyer for $70k

She puts $30k down and I finance the remaining $40k at 9%.

Then I sell the paper to another invester.

Any obvious downsides to this type of deal?

What would be a reasonable price to sell a $40k note at 9% for?

[stevie-o]

Just for clarification, I would be buying a home that fits her needs in the area she would like...

[fadi]

You would probably get about 30k to 35k after 6 months seasoning. Now a days Note buyers wants to see 600 credit score from the buyer, or good seasoning with track record of payments.

[stevie-o]

So I would lose money on the note even at 60-65% LTV?

[fadi]

Well, not really... Your cost is $48k, you're selling at $70k so taking $5k to $10k discount would leave you with profit.

I am not a note buyer, but I have looked at selling my notes before. In general, they look for FICO 600 and above and they look for a discount on the face value of the note. Some will require some seasoning of the note, others may do double closing and pay you for your note at closing.

Lets say your note is for $40k, you hold it for 6 months, and now the note buyer willing to pay you 86% of the note value and adjust it to 10%. That means you will be selling it at larger discount than 86% as an example.

If your buyer has very good credit, you may be able to sell it at 92% although not sure what their offer is in the current market.

You should call few note buyers and see their requirements and what they are offering.

[jsparks]

You could do this. One thing you could also do is run a scenerio by us before selling via owner financing to see what the note purchase price would be based on certain criteria (ie:  down payment, credit, seasoning, etc.).  This way you could have a pretty good idea of what you could get for liquidating the note before you create it. 

Let me know if I can help further.

Beth
Visions Capital Funding