Since the market is slowing down and qualified retail buyers have been harder to find, would it make sense to offer owner financing and market to investors at below market value?
How would one wholesale or flip a non-junker house in good move-in condition?
Straight options would be easiest in this case if you were flipping them to retail buyers. Sign up an 60-90 day option with $500 or so consideration then assign the option to the end buyer. Your attorney can help you with the paperwork and facilitate the closing.
As far as LTOs - it makes a lot of sense, we’re back into the economics before Subprime NoDoc loans became the rage. But you don’t have to market at below FMV - that’s what you do if you want to be cashed out. If you do an LTO do it above current market rates. People who can get financing are buying now. LTOs are traditionally to people who can’t get financing now - due to lack of down payment or credit issues. You are offering a valuable opportunity to buy, devlop a down payment and improve their credit. Charge for that value.
Hello…In reference to LTOs, since the subprime lenders are tight now, would it make more sense to try to find subprime lenders that do 100% financing or use private lenders that provide 100% financing for the retail buyers with credit issues or can’t get financing to get into the house? Thanks.
First of all, my experience is only about 25% of T/B actually exercise their option and purchase the property. Most of the time you make the profit off of their initial option payment and the higher rent they are paying. If they repair their credit so they can buy, or the subprime market comes back fine.
When doing L/O you don’t necessarily find a lender for them. You are giving them an option to get into a property and the chance to buy the property within 1-2 years (depending on your terms) You can make a referral to a good mortgage broker, but it isn’t up to you to get them financed.
In fact, what normally happens is they pay their option fee and stay a year, then it tunrs out they can’t qualify for the house yet. They pay another option payment for another year, and they continue on. At the end of the second year, they still can’t do it so they move out, and you get another family to move in, pay an option payment and stay a year.
If they are the 25% that do fix their credit issues and exercise their option, then great. You just made you backend money. However, if they don’t, you collect another option payment and continue on until you cash out or sell.
in this market - LTO is a great opportunity for the T/B, but a greater deal for you, the investor.
Because of the foreclosure rate and the subprime lending decline, the market is now seeing a large growth of potential renters and tenant buyers. As long as the local rental rates will support a positive cash flow with whatever financing is on the properties and you dont need a large upfront payoff then L/O would be the way to go with pretty houses.
If you cant or dont feel able to handle this yourself then find a partner and do an equity split instead of trying to flip the properties to another investor.
Jake
With the growth of potential renters and tenant buyers, L/O seems like a viable way to go in this market.
If the owner does not need to be cashed out with all cash now,
how does one find or market for these deals from owners that you can turn into L/O deals?
If the owner needs cash out now, guess one could get the property under contract and then find a retail buyer that you can help get them financed.