Seller Financing. Using the Rehab Costs as the Down

Quick question…

Note (This scenario are for homes that a not in a livable state. These homes are currently sitting for sometime not being occupied.)

Has anybody structured or knows of a Seller Financing deal where the buyer has to come into the home with a set amount of rehab receipts for the materials. (Example, Lets say 10K of proven materials into the home by a set time lets say a month).

My thought was to entice a seller by assuming the rehab costs and offer (300-500 dollar income per month) or an agreed upon interest rate on a ugly home just sitting vacant and cannot be occupied due to the rehab not being done.

The home would need to be adequately rehab for rental.

Instead of giving the money to the seller outright put it into the home to get the home up and working and occupied. If the buyer walks away then the money is in the home and the seller can foreclose on a contract for deed held in a escrow.

Any thoughts???

I did a deal similar to this but the house was livable although I would have qualified as a slum lord. The guy wanted $30K and would not budge, so I offered him the full price but I said that I would not pay any interest for a 5 year contract. Simple 5 years at $500 a month and it’s paid for. After painting and cleaning up I was able to rent it for $600 a month and year latter after the tenants moved I did a kitchen remodel and rented it for $900. About a year after that the tenants moved and I did a bathroom remodel and rented it for $1,200 a month. In the two years these tenants have been there I have gone in and changed all of the windows and recently had the house resided. My wife and I did most of the work ourselves to keep costs down. I have a good family in the house now, who actually pay their rent two weeks in advance, no plans to increase the rent until they have a new garage. The house is now worth about $100K and if I furnished it and rented to a company I could get $3K per month. The rental market is great when your near the Bakken Oil field.

JoeDC you could try to structure your deal so you don’t pay anything until the house is livable and rentable. Tell the seller that if you default they will get a better property than the one you received from them. Allow them to come in and see the progress. I have had much luck when doing properties like this and other sellers may come to you offering to sell their properties. If it’s a family home you would be amazed at how happy the family will be at seeing their former home saved when so many are being torn down. I guess this would work if you rented not sure if you just flip?

I really like doing old family homes it has lead us to many other deals including getting a house that was given to us, but that’s another story.
randyscott
good luck!

Randy,
I appreciate your response. Sounds like you did well with your home by Bakken Oil Field.
I am property manager and have been doing similar deals where I do the rehab on a vacant home that needs work on it to get a renter. I am regularly getting this done for the costs of $2500-$4000.

However, my thought now is to take the same situation where I was rehabbing to rent homes for another owner and now buy these homes for myself and keep a larger amount of the rents to pay off any rehab costs and then as income.

Being that I am new to the acquisition part of this. My question are?

1 Did or do you use a contract for deed?
2 Do you use a escrow company to make your payments too and have that escrow company make the mortgage payments for the owner?

I really do appreciate your comments and advice.

Yes, I did a contract for deed for 5 years and we are in the process of refinancing the property now, about 4 years later. I did not know that in the state of ND you MUST have the contract notarized! If you don’t you will not be able to have it recorded at the county court house. Don’t make that mistake, I am pretty sure our deal will be fine, it just isn’t recorded.

Now I don’t make my payments to an escrow company, I make them to the owner and on each one I make a note of the Principle amount on the memo section. I always use an abstract company to change the title to my name, I know you can do it yourself. On my first investment property purchase I just took the new deed that the seller and I had filled out and recorded it at the court house, big mistake! I could not get financing on that property because I had failed at a previous business about 4 years earlier and my credit was a mess! After my credit was cleared up we went to finance the property and found out there was a cloud in the title. It turned out the original was Michael Francis B and the son who sold the property was Francis Michael B and the son had transferred the deed to the individual who I bought the property from. It turned out that the house was never in probate when the father died. Guess what, we had completed the remodel on our credit cards and we had to hire an attorney to reopen probate, locate all six children get them to sign off that the sale had occurred in a legit manner and then transfer the property. I think it cost about $4K, the owner who sold it to me had issued a warranty deed but he was not in state and would not contribute to the legal fees. We purchased a burnt out house on a lot for $1,000. So I can understand his frustration.

We have made some mistakes over the years but we have not made any that we could not over come. When we remodeled that house we added a second story and made it a duplex. Now it is bringing in $5k per month as a furnished rental. God is Good!

Don’t make my mistakes
randyscott

Randy,
I appreciate your telling me of this and of your experiences. Not to belabor the issue. I talked with a title company today and a Realtor that has put some deals like this together in the past.

Both said the same thing on the issue of the Deed. Although the title company here in Utah stated that her company will not do a contract for deed as it is referred too.

She indicated that it was not secure enough for them as a title company to insure against. Their policy is not to do them. A lot of this was mainly to do with death and probate issues.

The title company did state that they would do the seller finance paperwork and switch title to me with a warranty deed. I then asked how would the seller get their home back if I were to default on the payments or go bad.

She indicated that the seller would have to start a foreclosure. I want to be able to entice the seller to do the deal with me, but this sounded hard for the seller to get there home back if I went bad on him.

The title company them suggested that at the time of closing that I record a deed back to them (seller) in lieu of foreclosure which would make it easier for them to get their home back if I were not to keep up with my end of the deal.

Obviously that is not my intent…but I want to attract a seller to work with me and looking at the deal from the other side is important to me.

However, the Realtor stated that I should get an attorney to draft the contract for deed and set it with an escrow company.

I think I would want an escrow company to handle this so as to insure that the title is good.

Just some food for thought…

Thanks again. Joe

Joe interesting comments, thanks. I didn’t know anyone would transfer the deed prior to the contract being fulfilled in full? I have read enough to know that I would never sell a property on CFD because of the expense of foreclosure. My focus was to record the deed so the property owner would have difficult time if he tried to sell it out from under me. It’s interesting that you never stop learning in this business.

Thanks,
Randy