potential deal?

hello,

i was wondering which, if any would be better…lease option or sub. 2.

owner motivated (moving)…owes $247k, which he’d like to sell for…
market value $260k (new home)…

i think the fact that there is little equity is not great.

any advice on structuring a deal?

thanks in advance.

Lease option with TB in place . Will tell you how to structure later.

Hey Johnny,

Thanks. Anytime you can.

In a situation like this you want to find your end user asap so you are not stuck paying the rent yourself. You can offer the house as rent to own to a TB or keep the property as a long term investment. (It depends how the market is in that area and what you want to do with your investment.) Just do your homework and see if the area is appreciating. Even if the property does not have a lot of equity, it can payoff in a long term investment.

How bout passing on the whole deal and moving on. 13K spread? Weak. He’s not motivated.

Nate-WI

Nate

How can you say the owner is not motivated? He only wants what is owed on the home if I am reading correctly. What more can the owner do to be more motivated in your opinion?

13k is tight, but if the home needs little to no repairs, the interest rate is good and the arrears are small, you might want to pick it up sub-2 and do a lease-option to end buyer.

So if I have a mortgage of 150K and my home was appraised last year at 163K you would jump on that? Why?

With the market being so crappy, no T/B in place, appreciation rates not very good, and with a higher end home, I would just simply pass on it. If it had a 20K spread with very liitle work AND it was a lower end home then I would go for it.

Hey just my way of investing. I like the 50-100K homes. For me they are much easier to sell on a land contract, rent to own, lease option or outright buy and I have a bigger buyer pool. Why? Cause the economy stinks, people don’t have alot of money for a big mortgage, and its my belief that I have a much bigger buyer’s pool with this price range. Plus if I have to hang onto the property for a bit then my payments won’t drown me.

BTW…this has nothing do with motivation now that I’ve digested the entire thread. It has everything to do with little equity in the deal. Plus your gonna pay his arrears?

Nate-WI

+1

He’s not motivated enough, not in my definition of the term. $13k equity on a base of $260k is only a 5% discount - heck, you can buy a house at retail with a bigger discount than that. Equity is non-existent for all intents and purposes. I would find out what kind of rent the owner wants/needs, then see how that compares to market rents for that house. When you get into houses above $200k, rents often don’t cover mortgage payments enough to cash flow. Unless demand for $250k rentals is extremely high in your area for whatever reason, I’d walk away.

[quote author=gordo2417 ]
So if I have a mortgage of 150K and my home was appraised last year at 163K you would jump on that? Why?

I might jump on it if certain numbers work out and what my goals were for this property. It would depend on market conditions, your interest rate, repairs and total owed. If the place needed little to no repairs i.e. paint, carpet and a good cleaning and the arrears were not to deep, I might. If your interest rate was under 6% and the rental market could support its PITI, again I might. 150k @6% comes to $1065 per month. The homes I look at that price should rent for $1300 market rate. If you L/O it you should be able to get 1300-1600. If I could do a l/o for 1 yr you could ask 185k, this number is based on 1 yr old 163k appraised value. 163k * .07(% yearly appreciation) = *.07 = 185k, @ 8.0% comes to 1500 per month. Repairs and arrears would come to 8k which I would have to pay in mostly upfront. So I’m into it for 158k. I would ask for 5% down and that covers your upfront money. Positive cash flow should more than cover vacancys, holding cost, maintenance and selling costs for the year. After one year one could have a +25k profit. I have not done this before but it seems doable.?.?

I too agree that you have a much wider sales pool at the 50k-100k range. But in my area that price range buys you a small 2bed 1bed in a crappy neighborhood. Maybe in my area the 150k place is equivalent your 75k place.