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.