I am looking at a subject to deal with an appraisal of 250k and an underlying loan of 210k at 12.4% with a monthly payment of 2250.
They want 4700 to bring the back payments current and will walk.
I would like to get between 5000 and 8000 down on a 255k owner finance no qualifying sale with a 2 year balloon. Payments would be 2450 on an 11.4% rate. Is this a deal or am I kidding myself?
Help would be appreciated.
Howdy epascu:
That is a lot of money to risk. Do you plan on buying no matter what or are you trying to find a buyer before you lay out the cash and agree to make next months payment. The monthy cash flow is a bit thin with a rate of 12%. The old what if this and that happens and you are stuck with a vacant house for 6 months.
If it all falls in place and works as planned it would be a good deal. A lot of these do not work for some reason or another.
The best way at least to start is to agree to buy but only if you can find a tenant/buyer. Make your purchase subject to this and you will not risk as much cash. Your seller may not go along this this option and then you must decide if this deal is good enough or could you do better with another deal.
The only thing I am risking is my earnest money, The back payments will come out of the new buyers downpayment.
Will be sold on a contract for deed.
Or am I missing something?
Are you sure that you can get a buyer to pay 11.4%? The current “investor” rate that I got a quote on this morning was 6.125%. Also, I don’t believe that the payment you stated had the taxes and insurance escrolled. Will the buyer be paying that on top of the payment or will you have to pay that? How will you make sure that they are paid? And the most important question - Do you already have a buyer lined up that can afford these payments. If you do, then why don’t you just flip it to them for a $10,000 fee with no hassles. Both of you would win.
Wilson
I guess my basic questions were-is this payment amount, rate and downpayment requirement feasable based on what everyone else is doing or am I working with incorrect assumptions?
How high is too high? What are good real world target numbers for subject to deals?
12.4% is high,let alone 11.4% - maybe you could somehow short sale the property and get that loan down. then, wholesale it to an end buyer & make the $10k fee?
This post is from 2004!? :rolleyes
tedjr’s been gone…
Keith
Funny!!!
On a subject to deal you should be in the deal at at total of at the most 70% of the after repaired value. With the numbers you qouted, thats not the case. The reason why is because you need enough room in the deal to cover all closing costs, realtor and marketing expenses, the interest expense and your other holding costs. also need to account for fact that you may need to lower sales price. I would pass
hassansr,
I would challenge your assessment of this deal (in the nicest way of course!).
Your advice is excellent for the conventional deals, wholesale deals, hard money deals, and any other deals that have conventional overhead and/or substantial carrying costs. However, low-equity deals require the use of “subject to” financing …and quite frankly is about the only resort in these cases.
Let me give you an example of a recent, real deal.
We had a house that was valued in the high $300k range. However, the loan balance was over $400k. There was no equity to pay a Realtor, carrying costs, or appraisals, etc., etc., without coming out of pocket.
The seller was renting the house with a severe negative cash flow. We offered to take over his loan, with the tenant in place, if he would give us the deed. He agreed.
We talked with the renter to see if he was interested in buying the house. He was. We told him that his payment was going to be higher, but we wouldn’t require him to qualify for a loan for at least five years. He was interested, understood, and agreed to the higher payment (which was slightly higher than the current PITI+HOA).
The juicy part of the deal was that we wanted $30k down, or about 7% of the final sale price (which was the loan balance plus $30k, or $440k). The tenant agreed to pay us that amount and pay the higher payment. It was win/win/win.
The original seller won relief from both his debt and negative cash flow (and a management responsibility). The tenant won home ownership without qualifying for a loan! We won $30,000 just for putting the renter into an ownership position.
If we had waited until there was 30% equity, we would still be waiting. These deals are EVERYWHERE, but it takes some creativity and being on the lookout for opportunities.
Otherwise your advice is very well taken for conventional deals. However, “subject to” is anything, but conventional …for us anyway.
Good post.
Jay
Hey guys.
I am a bit of a newbie. But I have a real world situation I am going through right now.
I have an inherited property that has 100% equity. I owe nothing on it yet I owe personal bills and have a family member that is unreasonable: argue so we need to sell the property.
Details of the deal:
Property Appraised around $340k
Our sale price: $300k
Current Renter: $1,800 income
Debt owed on property: NONE :cool
Here is my question:
Is this the best rough to take:
Sell the property to investor for $300k
Split $150 out to other party and $150 to myself
Now repurchase the property back for $340 on a lease for $1,000 a month.
I already have a tenant paying $1,800 so that would net me an extra $800
Of the $1k I am paying for the rent allow $500 allocated to investor and $500 applied to the loan balance.
Conclusion: I am able to get rid of the other party with the $150k pay out. I am able to get the $150k pay out myself to pay off bills. I am able to require the property back even through I have shot credit. Investor feels secure as they are guaranteed a $40k + $500 a month for 24 months or 2 years totaling an net return of $52k. Now if they equable about tying up their money all and all it is a total return of about 18%. Not bad.
Also the investor has peace of mind as there is already a renter in the unit (Safety Net for them) Also I am guaranteeing it with my own income.
What do you think of this. For me is this the best way for me to structure it. After two years is it worth it for me to acquire this house now at $340k. Is this reasonable. Should I be giving more concessions or less to get this deal done. Does this sound like a deal that an investor will pick up. Is there another way for me to present or frame this deal to be more attractive to an investor?
If someone is interested or know someone who might be please let me know. But I would very much appreciate the feed back.
Thank you,
You’re better off 1031’ing into a $150,000 deal for cash, and calling it a day. At least you’re not paying taxes (I don’t think) immediately.
This deal is as likely as stringing a pearl necklace wearing a pair of mittens while blind-folded.
Buy another $340k house with $150k down for $300k. Then the only partner you have is a bank that only wants 5% on the $150k you borrow, and you keep everything else.
The original scenario is unnecessarily complicated and I don’t see it being “enough” return for “everybody” involved.
Sorry I’m not more help here, and I don’t want to rain on your parade.
Partnerships are hassles. Why not just buy a cheap, cash flowing property with the half interest you’re gonna get?
Why not borrow the $150k from the bank, and pay off the “other party” and keep the house for yourself. Evidently you’re not able to borrow?
A 45% loan-to-value loan should be easy for you to get, even if your credit a bumpy. That’s a BIG cushion for the lender in the event of default… Just saying.
Good luck! :cool