Thought's Anyone?

Bird Dogs, Wholesaling
1

All,

I have come across a deal through a friend of mine that seems - on the outside - to be a doable deal; however I wanted to make sure here first. Details: $400K owed on home in Colorado, appraisal for approx $950K-$1M, seller wants to walk from home while getting paid $25K. Seller was in private financing deal. Seller got behind on payments, private financier decided to foreclose. Seller went to courthouse and received a 30-day extension (we’re 1 week in) to find alternative financing for deal.

My friend has come to me for advice and will split all proceedings with me. Here is my thought - is it feasible? We put an option contract on this home for the sales price of $425K for the remaining 21 days. We would like to flip this contract to an investor for $500K. Is this something that is attainable?

Thanks!

Mark

2

What is an option contract and how does it work? Is this the same as a lease option? Do you, the buyer, have to put $ down?

3

I think what your suggesting is definitely doable if your numbers are correct. The big issue is time. Also, I’m not sure what putting an option on the property gives you that a contract would not. If there really is that much equity, finding an investor shouldn’t be very hard. It will also depend on how fast houses in that area and price range sell and what if anything needs to be fixed.

4

A straight real estate option is simple.

A REAL ESTATE OPTION GRANTS THE PARTY OWNING THE OPTION, THE OPTIONEE, THE EXCLUSIVE, UNRESTRICTED, AND IRREVOCABLE RIGHT TO PURCHASE THE PROPERTY FROM THE PARTY SELLING THE OPTION, THE OPTIONOR, DURING THE SPECIFIED PERIOD OF TIME THAT THE REAL ESTATE OPTION IS IN EFFECT.

you the buyer or wholesaler(optionee) ask the seller(optionor) to give you an option. An option to buy the property from the seller within a specified period of time (option period)

there are two contracts. one is the OPTION AGREEMENT that says that the option fee is (ex. $3500), lasts 6months, etc.

the second agreement is the PURCHASE AGREEMENT that specifies the purchase price of the property, etc. (ex. 200,000.00)

you, the buyer,wholesaler(optionee) give the seller(optionor) an option fee (ex. $3500.00)

once you give the seller(optionor) the $3500, you have (ex. 6months) to buy the property for $200,000.00.

BUT, YOU DO NOT HAVE TO BUY THE PROPERTY WITHIN 6 MONTHS OR BUY THE PROPERTY AT ALL.

JUST MAKE SURE THAT BOTH THE OPTION AND PURCHASE AGREEMENT ARE ASSIGNABLE.

WHAT DO YOU DO: YOU FIND AN INVESTOR WHO IS WILLING TO BUY YOUR ASSIGNABLE OPTION TO PURCHASE THE PROPERTY WITHIN 6 MONTHS FOR $200,000.00

IF YOU PAID FOR THE OPTION (EX.$3,500), YOU CAN JUST ASSIGN THE OPTION TO AN INVESTOR FOR LETS SAY ($10,000). – That’s the assignment fee

YOU JUST TAKE THE DIFFERENCE BETWEEN THE OPTION FEE AND THE ASSIGNMENT FEE: $10,000-$3500=$6,500 PROFIT

READ THOMAS J. LUCIER’S “HOW TO MAKE MONEY WITH REAL ESTATE OPTIONS”

Dan

5

where is this property located?

6

So far, the numbers presented means nothing.

Seller owes $400K. Is that the balance on the loan, or does that include any and all added fees that a foreclosure brings? Important to know.

Property appraised at $950K-$1M. Well, which is it? An appraisal is a hard number. It either is or isn’t. There usually is not a range for an appraisal. Also, you need to consider why that appraisal was done. The appraisal number sometimes can be off by as much as 20% from true FMV, depending on the reason of the appraisal.

What are the repair costs if any? Getting a $1M property for $500K isn’t a good deal if there is $300-500K in fixup costs.

What is the property owners reason for getting behind? Do they want to sell the property, or would they prefer to stay in the property? What is the seller’s financial/credit shape?

If the propery is truly worth $1M, then it would take some VERY bad credit to not be able to refinance the property. If the seller doesn’t want to do this, then you could (if you have the credit), as long as you know the answers to the above questions.

Property’s value is $1M, seller wants $425K to walk. Take over the property subject to (deed it to you), then refinance.

At 70% LTV, you’ll get $700K minus closing costs. Assuming 3% for that, it leaves you $680K. Pay the seller $425K, leaves you $255K to sit in the bank to make the payments until you can find a retail buyer. I don’t know your taxes/insurance for your area, so assuming HIGH and running a 30 year note @ 11.50% to cover ALL holding costs, your monthly payment would be about $7K/month. With $255K in the bank, you could pay that for up to 3/years.

Raj

7

Colorado foreclosure process will give you a 75 day redemption period to the owner even after it goes to sell. So if he got a 30 day extension and you are 7 days into it you still have another 75 days after that so there is plenty of time to get this done.