What kind of deal would work here?

If a house is worth $410K and the seller is willing to get only the $350K that’s owed, what can be done with this as a scout? The house is in great shape (only a few years old) and has been vacant for a year.

The owner was transferred to another state and has been making double-mortgage payments. The house was previously on the market for four months with no takers (about a year ago) because there was new construction going up nearby, and the prices were comparable.

I’m thinking that it may take a while to move the house at full value, but perhaps someone is willing to pay $360K to get $50K of “free equity” at closing, leaving me with a small profit potential.

What are some ideas as to what to do here? I know one thing I don’t want to do is a “subject to” deal and I don’t want to put a lease-purchase buyer in there. I am not interested in anything that will cause me to make payments on a $350K mortgage.

Thanks for your insight.

At the risk of being crass, purchase the place for $350K cash. You won’t have a mortgage payment.

It’s not what I do, but then you’ve boxed yourself out of some other strategies.

If you don’t find the answer that suits you, shoot me a message and perhaps we could work this one together.


This is one of those lay down deals…Get 'er done!!!
Good luck,

What does “lay down” mean? Just let it go?

No, it means that pretty much…no matter what route you choose, the seller will pretty much “lay down” and accept it…without giving up a fight

I know the seller will do most anything, but I don’t know what my exit strategy is for the house.

If it were a smaller deal, I’d accept responsibility for the mortgage payments and try a subject-to deal, but I’m not interested in covering a $350K note each month while I market the property.

You never mentioned that amount of the mortgage payment. Why does the prospect of paying a couple of mortgage payments keep you from doing this deal?

Are you trying to purchase and assign the deal, or purchase and sell the house?

Here’s the deal for selling the house:

Buy subject-to and sell on a wraparound note at an attractive interest rate to a solid buyer. Since you’ll market your property as the easy financing alternative to the expensive banks and brokers, you should be able to sell fairly quickly (you did say it was in good shape, right) and minimize your holding costs. By holding your own note and mortgage, you can get this deal done very quickly. You don’t have to wait for appraisers, underwriters and everyone else to push around paperwork.

Structure you note so that payments cover the 1st mortgage payment and provide some positive cash flow. Offer an interest rate higher than market (for convenience, quickness) and allow the buyer to negotiate their rate down or, better yet, buy it down with a higher down payment.

Advertise “will finance,” “low interest rate,” and “no closing costs” to get that phone ringing. You may even ask a bit higher price since you’re offering such great terms. Pay the buyer’s closing costs and make it even easier for them to chose your home over the competition.

Make sure you get a sufficient down payment from your buyer to cover all your out-of-pocket costs. On a $410K home, I’d like to see at bare minimum of $10K, but more like $20K (about 5%) or more down from my buyer. The more you can get, the better.

Just make sure that you keep the balance of the underlying 1st below the balance on your note. If your buyer comes in with a large down payment beacuse they had a substantial equity in the old home, it’s possible that your note’s pricipal balance would be less than the underlying first. Be responsible and pay down the existing first to keep it’s balance at or below your wraparound note.

If you hold for two months with mortgage payments of $2500 per month (I just picked a number) and repairs of $2000 (cleanup and paint) and marketing costs of $1000, then you’d need $8000 available to do this deal. Of course, you’ll get that back when you close. That’s not bad for a $60K deal.

If you just can’t see doing this deal without making a few mortgage payments, this is not the deal for you. You can’t get the reward if you can’t accept the risk.

Perhaps some of you Carleton Sheets “no money down” students can formulate a no-risk, no money down stragegy for buying and selling this one. :wink:

Here’s the deal for assigning the contract

First, make sure you can structure a deal so that someone like me can do what I mentioned above. Let the seller know that you intend to purchaes subject-to the existing financing and that he still has liability for that debt.

Next, purchase a 90 day option to buy the house. Offer $1000 or whatever you want to secure the option. You could offer to increase the purchase price by the amount of mortgage interest he pays between the option date and the closing date. In effect, he will get his mortgage interest back and you won’t have to make those monthly payments while you market the house. I’d suggest you complete a purchase contract along with the option contract as an addendum stating the terms of the purchase should you exercise your option.

Finally, sell the option rather than the purchase contract. Of course, the contract is a vital part of the package. You can likely make more money selling the option than the purchase contract because it required less capital and you didn’t make mortgage payments. So, let’s say you sell the option for $4000, and make $3000 (minus the $1000) option price. That’s not bad for a day’s work.


I really appreciate your detailed reply. I will read it several times and try to digest it.

Again, thank you very much.