Newbie wholesaler working with underwater seller

I am a new investor, trying to land my first wholesale deal. I have been talking with a homeseller who is probably about $73k underwater on an investment property (the balance on his first and 2nd mortgage is $382k, FMV for the house is around $310k). It is currently renting for $2100 a month but his monthly payment is $2500 a month. He is not behind on his payments, but takes a loss each month. He is not in the landlord business by choice and would like to sell but does not want to take a loss of more than $10000 at the time of sale.

The house is in Dumfries, VA, a suburb that is about 45 minutes to DC, and close to a major military base. Prices there seemed to have bottomed out in 2009, and are now coming back.

The only way I could think of to help him is a land contract sale, where the combination of down payment and monthly payment over a term of 5 to 7 years covers the $2500 a month payment, and he makes an additional payment of $250 - $300 a month for the 5 - 7 years, so that by the end of the contract term, the balloon payment due is enough to cover the remaining mortgage balance.

However, $75k is a big gap to fill in 5 - 7 years and would mean either a big downpayment or a high interest rate, along with a $20k - $30k (or more) premium added to the purchase price over fair market value. I am thinking that since the market is going up, this could still be a fair deal for the buyer since by the time the contract term is up they would have recovered the $20k - $30k in equity through appreciation.

Is something that could work? If not, are there any other types of deal structures that might be worth pursing?

I would like to hear everyone’s opinion on this.

My advice is not to speculate. To make a deal with the assumption that the market is going up will be very risky. There are sill a lot of foreclosures and a lot of houses under water that the ARM should be setting soon which means more defaults to come. And take it to account that I am in MA and the real estate market has not drop as dramatically as in other areas. I don’t see how this market could go up any time soon. Being very optimistic it might stay the same for many years to come.

Bottom line you don’t have a deal because there are tons of seller in the same situation than this guy. I will focus all my energy in finding real deals.

jpetrucci, that sounds like very good advice, I just wish I could help this guy out.

Thanks for replying.