Deal or no deal

Financing, Hard Money Lenders, Private Money
1

I found this opportunity through Craigslist on a SFH near my residence. Went to see the house which is in fair condition, my estimation is that it needs no more than $25K in updating.

Asking price $440K but homeowner kept saying that is negotiable and needs to sell it because he already purchased a house in another estate. Most likely he will take $400K and ARV is about $510K.

The good part is that there is no mortgage and he is considering in holding the mortgage for 6 months with monthly payments at which he wants a balloon payment.

Help on this:

What would be considered a fair down payment and rate? Obviously I want to give him little money upfront.

Are there HML that can lend me $50-60K to get started?

What would be a good exit strategy if I don’t get to sell the house in 6months?

Another idea is that I’m willing to give him an additional $5k on the price of the house if I don’t have to make payments for 6 moths. In another word I want to roll it in as part of the balloon payment.

IS THIS A DEAL OR NO DEAL :beer

2

what is your exit strategy?

how is the market - you say it’s worth after repairs 510k - will it sell for that? (if that’s your exit)

using a HML for a rehab loan - what will the HML use to secure the loan? your good will?

have you considered a lease option with a small consideration (down payment)?

how do you know they don’t have a loan on the property?

how do you know it’s worth 510k?

why are they selling?

3

Rich,

After you put in the 25K for upgrades you will be at 425K in the house already. If it is only worth 510K you will be at a 84% LTV with the additional 5K. It sounds like a good deal because of the way the seller wants to structure the deal, but after all is said and done it could end up costing you money because of selling fees and holding costs. I don’t think there is enough spread in there for you. I say NO DEAL!

4

I would vote “no deal” too. The terms are OK but I would look for more margin, too.

My personal formula on these deals is:

Assessed Value - repairs * .80 = My Max Offer

I bought a bank owned duplex in November. The assessed value is $196,000. Repairs estimated at $10,000. My max offer in this case was $148,800. I actually offered $132,000 and it was accepted. My guys got the work done for $4500, we got it rented quickly and I just had it appraised for $215,000. This was a good one.

In your case, let’s say the assessed value is $400,000

$400,000 - $25,000 * .80 = $300,000 max offer.

People tell me all the time that I’m crazy and that I will NEVER find deals that fit my formula. But I do and I buy approx 1 property per quarter.

Hope this helps!