Hey all, I want to say thanks beforehand. I need some insight on this potential deal, I have been spending most of my time learning the wholesale side but this possible subject/lease option deal just fell in my lap today.
I was calling owners of properties for rent trying to build my buyers list and while talking to one lady she said that she’d love to sell the property and would take any reasonable offer, they are just tired of it and the current renter has made a mess of the place, blah, blah.
This was my first series of buyer calls, so I was surprised and not ready for this situation. Here is what I know:
$135k Mortgage
2200 sq. ft 4 bed/ 2 bath
New Roof, Windows, AC Compressor
Currently rents for $1200 - the tenant will be moving out in the next month or so (I need to confirm this)
The property is in a nice area, I am still honing my skills at determining ARV’s but comps of sold and for sale in the area value the property between $147k -$176K. I know this is a large spread but I have not seen the house yet, I am calling my RE agent in the morning to get accurate comps.
I have read Sean Terry and Michael Quarles e-books for subject to properties but am still light in knowledge because, as I said, I have been focusing on wholesaling.
Any suggestions just to get the ball rolling for me?
Hi,
When someone say's to me "She'd love to sell the property" I take that as "The seller wants to sell the property" as in escrow and paying off the mortgage in there name! Until I ask the qualifing question? "What would you think about creative terms if I could take the burden off your hands"? Then they may ask? "What creative terms"? and I would say "I am thinking about a subject 2 or a lease option"!
Now there is a big difference as taking over "subject to is the taking of title to the property by a grantee, wherein the buyer is not responsible to the holder of the promissory note for the payment of any portion of the amount due. In the event of foreclosure, the most that the buyer can lose is his equity in the property. The original buyer as maker of the note is not released from his responsibility.
So if you don’t make the payment the original owner has to foreclose on you to get there property back! Now obviously a lease option can work!
But until you gain concensus that the seller would consider creative financing assume when they say sell, they really mean getting it off our hands!
I think this opportunity is meant for a contract and an end buyer, you can contract and assign or use transactional funding, with these numbers you could make a few bucks and solve a problem for the current owner!
The sellers really need $139k to pay the mortgage off and closing cost’s, depending on what you think the repairs cost and what FMV actually is will depend on whether you could make a deal.
GR
Thanks GR. I would rather cash-out now than do a lease option, just not sure if they owe more than the $135k she said or what the value of the property is yet.
I will return when I receive the comps. I plan to call the lady back and set an appt. to view the property on Friday, even if I can’t get the house under contract I’d like to get some experience with meeting potential sellers.
Is there a way to check liens, etc on properties other than having a title company to do it?
My agent was out of the office so I am waiting to get her comps.
I drove the neighborhood today, there are some other houses for sale but it’s such a wide range of prices I am still unsure what the ARV would be for this property. Here are some #'s:
1269 sq. ft $134,900 House looks to be in very good condition, well-kept, and interior is not dated. 1 street over.
2050 sq. ft $147,900 House is well-kept but dated; still has 60’s appliances and pink bathroom tile, etc. Has 2-care garage 1 street over
1625 sq. ft $169,900 House is nice and has been well-kept and is not out-dated. On the same street
1,938 sq. ft $155,900 Haven’t seen this house, but Zillow shows it sold in Dec. '09 $160k and tax records confirm this with the above price.
Based on these numbers would it be a fair assessment to give the home a value of $80 sq.ft?
I have been past the house, it was well-kept outside, looked nice. I have seen pictures of most of the home and it is nice, hardwood floors, etc. I haven’t seen pics of the baths or kitchen though.
Just trying to get figure out if this is a possible deal or not if I could get the price for what they owe on the mortgage. Any insight will be appreciated! thanks
The seller had a sign in the yard, they’re asking $149,900.
If the underlying mortgage is a good one (low pmt, low fixed rate, no more than a couple pmts behind) then this could be a good sub2 deal. She’s a burned-out landlord so your talking points should include relieving her of the burden of the house, no more management/tenant/maintenance headaches, etc.
However you have to figure out what you’ll do with it if you get it. Know your exit before going into the entry. Is the tenant behind in rent? If so have her evict them asap then you’ll close on it. I would want this house vacant when I bought it, or at least be able to evict them shortly thereafter.
What I’d do is the following:
- Arrange somehow for that bad tenant to leave
- Get house under contract sub2, giving the seller little to nothing down
- Find a tenant/buyer with at least $5k down plus 1st months rent, marking up the sales price 10% over retail
- Set up a closing both the tenant/buyer and seller closing on the same day
- Celebrate!
Thanks NSU. So I should do a lease to own or purchase option. Is a lease option better because I don’t have to do any of the maintenance? How does one go about explaining and convincing a seller to go along with this arrangement?
Also, what is a quick way to find a tenant/buyer? There are tons of rent to own listings on clist in my are!
Like I stated I’d go for the deed (subject-to) before settling for a sandwich lease option, but hey, whatever it takes.
Handwritten bandit signs pull calls for tenant/buyers better than anything else I’ve ever seen.
My recommendation is that you find a deal at a max 70% LTV and it cash flows really well.
If the ARV is 150K then purchase and rehab should be no more than 70% or 105K. $1200 is also not a lot of cash flow. In the better cash flowing markets you can get $1200 rent on 40-60K purchase + rehab. Based on your numbers you will have to buy this via short sale for around 85K to reach 70% LTV. The numbers don’t work, find 100 sellers like this and some the numbers will work.
Moellerryan, I agree. I ultimately made no offer and decided to walk away from this property. I just don’t know much about these kind of deals and am not looking to get involved with some like this right now. Thanks for all the advice everyone.