how to buy this house, owner is willing to sell subject to

General Real Estate Investing
1

Hello,

I am trying to figure out what would be the best way to buy this property,

Purchase price 260K?

Existing Financing on the property: 108K
Current monthly payments PITI 1365/mo

Current monthly lease could be 1850/mo

The owner wants to sell the house, it will sell on the market for about 272K, but it needs about 5K to make it nice and there is the 6% commission.

If i buy it she saves the commission and the 5K becuase I would lease the house out and for leasing it can be fixed from 1K wihch i will pay.

So the question I wrestle with is how to make this attractive to the seller but still have it make sense to me.
She is willing to sell subject to existing financing and I wonder what to do for her equity. Buy at at a price higher than 260 and do a wrap for 5 yrs where she would be paid when i refinance, or ask her to carry a second mortgage for 5 yrs with an interest only and baloon after 5 yrs.

I could put a down payment of up to 30K, the problem i have is that i am not able to obtain a mortgage due to stains on my credit that will fall off in 2015.

Homes in this area are appreciating very nicely. She can sell on the market in 2 days but would consider my offer and finance if it is attractive. The house is on the street where i live so renting and maintaining it would be a breeze. Yes, i know there is no cash flow, i am going more for the appreciation. Thanks very much for any input you may offer.

2

There is no deal here.
She is not motivated.
She can and should sell at retail to a retail buyer.
You don’t/can’t pay retail for investment properties.
Ask all the “investors” who purchased properties in Phoenix and Nevada for the appreciation during the “boom” years.

You make money when you buy.
Preferably at a 30%+ discount.

3

With this much equity, the loan is likely to be called due, and you’ll end up refinancing this by force. That is, if you take title the wrong way, insure it incorrectly, and just to add insult to injury make payments to the wrong people. Forget that.

As bad, you don’t have enough spread to make this a Sub2 financing-based flip.

Partly worse, it needs five thousand dollars worth of work. Really?

And really worse, you’re thinking of giving this woman thirty thousand dollars down?

So, not only is this not a cash flow deal, it’s just a straight craps shoot with $30,000 laying on the table. Why?

Otherwise, you’re in love with the idea of owning this house, or you just love the house, or something. But this isn’t an investment quality purchase. This is an emotionally driven gamble.

Aren’t I a ray of sunshine? :biggrin

4

Thank you for responding and for the advice. The house does not need 5K repairs if it is leased out, it only needs 5K to make it shine to sell retail. For lease we could get it done from 1K or less.

I thought about maybe leasing it from her and lease it out in turn (an option to buy or a lease purchase maybe) also.

This house is in Austin Texas, we were barely affected by the nationwide housing issues, the prices held good and are climbing like crazy. So in two years, when i plan to refinance (or sell ) the home will likely be seling in the 300s. Right now i could lease it out in 2-3 days for about 1850-1900, both homes and leases are flying off the shelves. I am not determined to give her 30K down, I could potentially put down as much as that but not more. I do not want the house for flipping, would sell it in 2 or so years if i have trouble getting financing myself, but i rather would keep it long term. I dont know if they would call the loan due but that is a possibility, but currently the interest rate is lower than what is on the existing loan so I am not sure they would call it if it performs. and yes, i love the house, I wouuld eventually (ideally) move into it but right now i am not in the position to move especailly not so quick. I am not sure if all this makes a difference. ? The problem i am trying to solve is that i would like the hosue but can not get a mortgage, and do not want to get into an upside down situation. I am not looking for a “deal” as far as flipping or cashflow, i am okay buying it at market (actually at 260K it is about 12-15K under market, only becuase she can save the commission so she would still net more than with retail)

5

Balloons go POP!

6

Wow, this is a great deal (for the seller) The seller only owes 108K but yet the payments are $1365 firkin dollars? Holy freakin dancing zapatoes. Must be over 12% interest. Tell this seller to refinance it at todays rates, she can take out a large chunk of her equity and you can take it over with no down & low and monthly payments on her remaining equity.
Or better yet, find motivated sellers with little or no equity.

7

Since this isn’t really an investment, but a potential personal residence, I think randoskie’s advice is particularly helpful.

Have the seller refi the existing loan to a more reasonable rate, and then take over that new loan.

I’m betting the seller has terrible credit, and that’s why he hasn’t done that already.

Another issue that we didn’t cover, was the interest paid on the seller’s current equity. If you’re buying at $260, and the existing loan is $108, then the remaining equity is $152.

Whatever interest, if any, you pay the seller, will just add to your overhead.

For instance, if the seller wanted 5%, interest only on his equity, it would make the payment $1,815/mo.

Despite not wanting to over-pay, just because your credit isn’t what it needs to be for a conventional purchase, a $30k down payment would make the terms suck drain water.

Meantime, you can find and negotiate 10% discounts, on $272K houses, and get sub2 financing, without paying much more than about $4,500 in cash, if you’re willing to spend some money finding these deals.

Sellers with a lot less equity than you found here, will move for that much money.

However, I would finance the house on a resale, for $300K, and get $20,000 down. I would get the rest in three or four years when the buyer paid me off. This way, I get my money back, plus some, and then find another deal.

How many deals like that would solve your credit problems?

8

Thank you very much for the input, I appreciate the help.

I think the reason she did not refinance is because she has known for the last two or even three years that she will want to sell the house when the renters move out and would not break even on the costs. (this is a house right next door to mine)

She does not have terrible credit, I do. She has bought another house on the other side of town last year so she must have good or decent credit. She paid 245 for the house in 2006 and her original loan was only 120 so that is why her balance is only 106K. she had put down 125K at the time. (could be the other way around, 125 loan and 120 down, i can t remember).

the payments are 1365, yes she has a higher than current interest and the property tax alone is over 5K per year, plus property insurance.

I dont think she will go in the hassle of refinancing for me, she just does not want to mess with this house anymore, she lives far, and she does not want the mortgage payment. Her only motiv
ation is to get the most money possible and not have to pay her mortgage or deal with tenants, but she is not desparate for the money to go to her right this minute. I guess the simplest to put it she is tired of this house, not that she is in a financial bound or any dire immediate need for the money.

Only what i am trying to figure out if there is any way for me to buy this house without getting myself i an upside down situation, becuase I ve been wanting that house for a long time just i was never in the situation to buy it and now i am not in teh situation again because of my credit. I have 30K (i am not saying i want to give that to her, just that i do have it ), and that is all the money i have. I can rent the house for 1850 or 1900 in less than a week for sure.

9

so she bought in the height of the market in 2006 and put out $125k in her own cash? Then she bought another house? now she is trying to convince you to part with $30k to take over her position? If she doesn’t understand- that whatever she thought was going to happen- endless appreciation- is never going to happen and that if she doesn’t sell it, she will either have to: 1.) pay the mortgage herself, 2.) get tenants 3.)give her $125k to the bank and walk, 4.) discount it to a investor for immediate cash, 5.)take her “equity” in a 2nd position lien, or 6.) Lease option to you, you deal with tenants/maintenance and repairs. That’s it. make an offer for all cash, give here a L/O offer and then a Owner finance offer. let her choose which one she wants and that’s it. if she says “I want to sell now”, then pick my cash offer. “BUT I don’t want to lose what equity I think I have,” then Chose the L/O or OF, Choose whichever works for you… then you shut up. if she say no, then you know she isn’t motivated. Then wait and follow up with her… it does no good to beat a dead horse…

10

I am not sure you read the entire post, she is not trying to convince me of anything… I am seeking a way to buy this house and I am not able to get financing. She does not need her equity immediately, and I am not seeking an inventment deal was just seeking advice on how I could buy this without getting myself in an upside down situation. Austin Texas is not in a real estate bubble at the moment so I am not worried about the bubble and is not in a down market either so she can sell retail without any problem. she does not have a problem, I am the one with the problem :slight_smile:

11

My dilemma is over, she sold the house for 278K in 3 hours on the first day on the market today, asking price was 275