Possible Deal/Help!

General Real Estate Investing
1

Hello Everyone…I am new to this site, live in California, and have some questions… Ok, here goes

Seller asking $429,900 (comps around the same)
Seller owes approx. $130,000 on his mortgage, and is willing to finance 1/2 of the purchase price for 3 years.

Could I offer…

Purchase Price: $417,500
Down Payment: $208,750 (obtain from HML)
Balloon Payment: $208,750 (due in 3 years - no pay/int)

and still make a profit?

I’m wanting to accomplish this by paying off HML asap with new refi interest-only loan; Place lease/option tenant/buyer in the property for a nominal option fee to purchase in a year (maybe two) or move…,with a purchase price of around $468,000 (as this is what the highest comp sold for); Produce cash-flow from the difference between what I pay on my new refi loan (1st mortgage) and what my tenant/buyer pays me; And in the end, have the difference between the $468,000 from my tenant/buyer and the $417,000 needed to pay off the 1st (refi) and 2nd (seller) mortgages.

Someone, please tell me if this is do-able, as I had contact with this seller about 3 hours ago, and expect to hear from him tomorrow.

Any help would be greatly appreciated. Also, if this does work…Does anyone have any words of wisdom I could use that would make this seller comfortable with accepting 2nd position with the mortgage?

2

Howdy TA:

This deal sounds very risky for a minimum return. The HML will cost about $20K in points plus 14% interest and other closing costs. The seller financing will help offset the high rate but the seller will more than likely want payments not to mention a first lien. I see a deal breaker problem here as well.

The whole deal is betting on inflation and a higher price and your tenant buyer having better credit in the future than today. There are a lot of variables in play here that all need to work out in your favor and odds are that something will go wrong. You need equity going into a deal. You would be better off getting the seller to discount the price for cold hard cash and borrow 100% from the HML. Most only loan 75% of the value so you have a major up hill battle trying to get the price discounted. The seller needs to me more motivated. The Ca market is still hot but signs of cooling down are present in some areas. Watch for the number of houses on the market or the days on market getting longer and a slow decline in prices. All this will have a negative effect on your profit or a positive effect on a loss.

3

Thanks a million!