First deal/BRRRR/Seller Financing?

Question

House in my neighborhood is vacant, I found the contact info online and got a hold of someone. Conversation went as follows:

I live in the neighborhood, saw your house and wanted to know what plans you have for it because I'm interested in it. He said they were going to fix it and move in but contractor was quoting over 6 figures for renovations. Wants to sell AS IS. Vacant for 5-7 years, and mentioned buying and fixing and having instant equity (he was speaking in like third party) He said he had a lot of interested people but asked me to meet him there on Saturday for a walk through (made himself available) I don't think he has a lot of interested folk calling him because of that.

--Had this been 6 months ago he could have sold the house for a lot more or faster then what I could offer- now homes in my neighborhood bought back in April and flipped back on the market in July or so are NOT selling and price reductions are the norm- the writing is on the wall and the market is coming back down.

Anyways I asked him what he want's to sell for and he said he would have a number tomorrow for our meeting. I've been searching and calling and it looks like rough estimate $70,000 in repair costs top to bottom.

I have 2 options, I can do a 203k FHA loan that will cover the purchase price and renovation cost since this is in my neighborhood I can live there with no change to my situation. That's great but I know I can only have you FHA loan at a time and since I also need to get my hands on a multifamily I actually wanted to get a 4plex once the market takes a downturn here in the next 6 months in this market. This is my thought process- this SFH can be my home and I can fix it on my time since I'm not planning on flipping it or anything. So if I instead save the 203k FHA for when I get can get a 4plex I can use the funds provided by the 203k FHA to purchase and renovate which I believe will be more costly then the SFH. This is thinking timeline wise, with the FHA I have to live in the property until I refinance and I need to be ready for the downturn in the market and I think that the FHA option in a valuable option I want to keep in my back pocket.

If that's the case and I am on the right track with my thinking I can provide the seller with an offer for seller financing- I'm still figuring out what I'd offer as the purchase price (since the market is decreasing I don't think the $316,000 comps in the area are going to help find the ARV) it would be the purchase price amortized over 30 years with an interest rate of 5% (?) with a balloon payment due at year 5, maybe a $5000 down payment? I think the seller will go for it because this house has been sitting for a long time, they know they aren't going to fix and if they were looking for an opportunity to get 'rid of it' for a lump sum that would have been 3-6 months ago- I think it's one of those issues you keep pushing back and pushing back and it's only costing them money- I can take it off their hands and take over all responsibility taxes, insurance, and liability and they can now make some cash flow. Thoughts? Purchase price? I'd offer $100,000 to $120,000 for the house.

Either the 203k FHA or the seller financing I'd still shoot to do a cash out refinance in approx. 18 months so I can roll into next property and rent out this one. Rents in my area are going for $2000-$2800. $316000 ARV, based on comps in the area, great school system, 3/1.5 home.

Bottomline, which financing would you choose? How would you bring up seller financing to the seller? How am I thinking?

Eliott Elias · Answer

I would try to hit seller finance hard. How’s the time where people can’t get top dollar and want to figure out a way to sell their property without paying the taxes

Carolina Mejia · Answer

Thank you for your response Michael! I think I am the only person who has reached out to them they this has just been sitting for 7 years. Yes I know now that the 203k has limits so I know I can't use it. The house is trashed and full of stuff that has been sitting for years so that is part of the issue- they are not going to clean it out. It's probably close to a dumpster full of stuff and furniture and then it needs to be demoed down to the studs. I sent the offer two days ado and i haven't heard back yet. I offered 90k (podcast said if you are not embarrassed with your offer you are offering too much) In terms of hard money, I want to do a buy and hold and since the market in this area is taking a downturn- I don't know how much I can bank of on the ARV to be sure that the refinance so that I can pay the lender back within the year. Even as an exercise it felt good to analyze a deal! I am going to reach back out to the sellers in 2 days if I don't hear back. I'd love a counter offer but we will see.

Michael Dumler · Answer

@Carolina Villegas mejia, I get the sense the owner is not open to seller financing if he told you he wants 230k. Coming down to 90k is most likely not going to happen, that is a huge price reduction. I'm assuming he owns it free and clear. Also, if the property is down to the studs then your option of utilizing a 203k FHA insured loan has just been thrown out the window. You may want to explore hard money if you get the deal under contract. Best of luck with this!

Carolina Mejia · Answer

As a follow up to this- the property needs to be gutted from roof down to subfloor. They told me they want $230,000 ubt I just submitted an offer for 90k. Let's see what they say.