Good day folks!
I called on an ad that said motivated seller, open house $138,400. The seller said that he was moving out of state and needed to sell his house and would consider owner financing the home. He is moving regardless on the 20th of this month.
Currently his house is listed with a company that for 1.5% will put the home on the MSL and the web, but they won’t show it, have open houses, just offer a little more exposure for a FSBO. Listed till August
Home is in excellent condition with the exception of some exterior paint on the west side of the home. 3/2.5/2, 1936 sq.ft, cul-de-sac, 2 story, FP,Sunroom. New fridge, stove, DW, washer/dryer, stay with the home.
Financing
1st Mortgage - $96449.30
5/1 ARM 6.5%
$872 payment
2nd Mortgage - 18616.70
HELOC 8%
126.49 Payment that adjusts monthly as much as $50 dollars
Taxes - 1950 per yr. Insurance - Owner wasn’t sure
Owner is open to owner financing but was wanting his equity. He also said that his mortgage had a prepayment penalty & the mortgage would balloon in 2 yrs. but wasn’t sure of the terms. What would you do?
How would you turn this into a deal if possible.
Sorry for the long post
Lonster :
Fist thing I would do is comps for that house and determine if his equity remaing is REAL or percieved.
If its real equity you should buy that equity at a discount. Equity is always less than cash. Is the 138K an after Repair Value? if so you need to deduct from the equity.
You can buy it subject to the owner keeping the existing financing in his name. I would look at all his original loan documents to see the terms you will be dealing with.
The HELOC must be closed out so it can’t be tapped anymore by the owner.
As far as the balloon payment in 2 years should not be a problem as your buyers should finance before that. Find out what the pre-payment penalty is and how it will factor into your profits.
Do more due diligence and see.
KEC
KEC
I absolutely agree with you to do more due dilegence. I checked the comps and houses this size and condition are about 138K - 139K. How much of a discount would you ask for if you were talking to this seller? I’m not bashfull but want to keep the negotiation open.
Excellent point about closing the HELOC due to the fact the seller can use this financing to draw against for a period of time. Correct me if I’m wrong.
To close the HELOC the owner will have to re-fi correct, the 1st & 2nd? I would then look at taking the home sub 2. Sorry trying to wrap my head on making my position better and having something the seller could work with.
Lonster :
He owes about 115K. Comps sold reflect a realtors commission (in NJ its 6%) deduct that equals about 8K so home is really worth 130K. so he has 15K in equity he wants you to pay for in realty. Don’t forget the prepayment penalty you will have to pay and the repairs you will do. Whats the after repair value? Consider all this and offer accordingly. If you want the house for yourself to live in is different than an investment house. Now if ya get it what are ya going to do with it? If you answer all these You can somewhat project your profits if its an investment house. Then offer accordingly.
These are really tough questions to offer an opinion on as I am not in your shoes and don’t know your investment strategies, etc. Some Investors don’t touch anything with less than a 30K profit, others will do 10k profits any chance they get. It’s really subjective. Look at the whole picture then decide.
KEC
Kevin,
Thank you for the reply. Excellent points to consider!. I think this will help when I sit down with the seller to paint the picture of where I stand and what it will take to close this quickly. + it will be good experience to sit face to face to see what he is willing to do and see really how motivated he is. The seller said that he would consider a re-fi and I have a lender I can recommend, then if I can get in around $124 or better more around $120 sub 2 (preferably) this might work. Otherwise, what have I lost but some time and gained a little experience. Next… lol
Lonster :
heloc=home equity line of credit
I would not try and buy this property.First theres a 2nd equity line of credit,if they found out about the sell they will call the loan due and payable.Also the property is listed with realtor.What I would do is asked the owner to call him back after the listing is over in Aug.then asked for a lease option with right to sublease.you would found a tenant buyer who will buy the place.If seller doesn’t like lease option,then asked for an option.If seller says no to option. MOVE ON TO NEXT HOME