When to give up on a wholesale?

Bird Dogs, Wholesaling
1

Hello again! Sound advice required please.
I’ll try to not leave out any details.
I have a property under contact (option to purchase) for 119,000-that’s owed on loan. I gave myself till oct. 10 to wholesale. Comps (great neighborhood, school dist., ect.)are selling for 170,000 (but this is the smallest house on the block, so I’ll say 155,000)
Asking price is 125,000.
I get a ton of interest, investors blowing up my phone.
I and they finally visit the house and gentlemanly decline further interest or say the can’t go higher than 100,000. Unfortunately the newly installed hardwood floors have buckled, ape windows need replacing, work on both front and back porch…ect. -we’ll say $20,000 in repairs of which the seller is in denial about because he did most of the work himself…
The seller is 9,000 and growing behind on payments and the bank may take it soon. He is also out of state which is a pain when little something’s aren’t signed properly on paperwork.

A lease option is out because I’d have to ask for 14,000 down wich is a bit ridiculous for the area and I wouldn’t call the house renter ready.

Even buyers with traditional financing are snubbing it.
The only option I can foresee is a short sale. It is a VA loan and I don’t want this guys benefits hurt or decreased due to a compliance, he’s worried about hurting his credit.
Anyone have a good solution so I can help this poor guy? I feel awful about not getting the job done, I thought we had it in the bag before I stepped inside. I just don’t see going through the banks to negotiate s forclosure, though profitable for me, working out with our timeline…

2

Last line should have read short sale, not foreclosure.

3

According to your numbers, there’s not enough meat left on the bones to attract a rehabber, or traditional wholesaler, or someone needing to get new financing.

You contracted for the loan balance, plus the arrears of 9K, for a total of $128k.

Adding repairs, and the break-even number $148K.

So, I would get the deed, and market this as a ‘sweat equity’ fixer upper and offer seller financing. Here’s my ad:

NO QUALIFYING! NO CREDIT CHECK!
$14K DOWN. TAKE OVER PAYMENTS.
FIX IT THE WAY YOU WANT IT.
PAYMENT “$$$?”/MO

Set the price at $185,000 (Value in five years likely to be $200,000).

Put a 60-month fuse on the note.

That allows the buyer time to…

* fix the house to his heart's content
* go at his own pace
* easily refinance the loan
* take the original seller out of the picture
* protect the original borrower's credit
* give you the balance of the equity you've created at the resale.

The major benefit you’re selling, is not the house. It’s the terms.

The price is not a bargain. But the terms ARE…!

Meantime, I would add $150/mo to the existing p.i. payments.

I would work backwards to see what the buyer’s interest rate would be, based on the new payments and new loan balance of $166K ($185K minus $14K down).

The rate will probably look very good.

Of course you bring the loan current using the buyer’s down payment.

You pocket the remaining $5K. Now, anything over $128K is yours to keep. In this case, it’s $57,000.

After all is said and done, you’ll collect $150/mo for 60 months, or $9,000 on the payment spread.

You’ll pocket the balance of the buyer’s down payment, after the loan is brought current of $5,000.

Then you’ll collect the balance of your equity spread when the buyers refies.

$185,000 Sale Price
-$119,000 Less Loan Balance
-$ 9,000 Less Back Payments
$ 57,000 Profit
$ 9,000 Plus $150/mo x 60/mos Payment Spread
$ 66,000 Total Profit (On a Sub2 beater)

4

I wasn’t clear that the 9,000 behind was included in the 119,000. I think this might work if I can find someone with 14,000 down willing to do the work required. I will rework the numbers and come up with a plan, THANK YOU! It’s what I needed to hear.

5

If I was to get a buyer in under my financing terms with down payment terms, I was thinking I could sell the note and pay off the original loan and keep the difference. Note Selling Price 125,000-110,000 owed on original loan=15,000 (leaving out closing costs…) Question is, what sort of rate are note buyers after these days? will 6.5 or 7% be sufficient on a 30yr loan? Current owed is at 5.5 fixed so I can’t go lower that that.

6

I don’t buy and sell notes, but last I checked the yields needed to be around 18% to be marketable. The length and seasoning also influences the value.

You’re going to be wrapping your equity in a resale note. Instead you could create a 2nd trust deed for your equity, and sell that at a discount.

The issue is that you need to stick with this deal, and assist the buyer in getting new financing. A note buyer will not be interested in assuming ‘that’ responsibility. Never mind that you’re deliberately financing someone with inadequate credit to get financing in the first place. That won’t look real enticing to a note buyer. Especially on a high LTV second.

The marketability of your 2nd TD will ultimately depend on the borrower’s repayment history. So, a 12-month payment history, showing on-time payments, may be your starting place, if you decide to sell the note.

Don’t depend on this as an exit strategy.

7

Another possibility you can do with this deal is agree to get the owner to do a short sale.
This will allow you to buy the property for a discounted price, but you must have systems in place. You can find a realtor in your area that specializes in short sale negotiating to help you convert the homeowner into working with you and your staff.

Hope this helps! :smile