What's the best approach to this motivated seller?

Question

Good morning. Right now my real estate priority is finding wholesale and rehab deals but I motivated seller responded to my marketing and to me, in my limited REI experience, the only exit strategies for this deal would be a subject to, buy and hold and or lease option. Owner owns a home and is needs to move yesterday to start a new job in a city about 2 hours away. He's moved all his stuff out except his bed and a few clothes. He is currently one month behind on his mortgage and obviously owes the current month. Mortage is $830 and includes PITI and taxes, bringing his total to around $1700. The balance on his mortgage is 101K and I got on MLS last night ran comps and saw that his average price per sqft is $53 and the home is 2080sqft brining an average sale price of $110,240. He wants to move on to his new life and willing to let the property go for just what he owes. It's a newer 2008 build needing very little other than TLC. So obviously there is not enough equity in this deal to consider my immediate strategies of wholesaling it to another investor. San Antono has a very srong rental market and would have no problem renting assuming the rental price could cover the mortgage. Running rental CMA as we speak. Can anyone recommend a strategy they would pursue of met with this kind of seller? Thanks!

Vincent Hearn Jr · Answer

I visted the home myself and walked through every inch of the house. it was built in 2008 and is virtually perfect aside from a few runs in the berber carpet. My wife is a property manager and will be visiting the property with me again when we go back to finalize terms. AS for the appliances I would nee do replace the dishwasher which quit working but thats not hard at all. As far as the terminology around "lease option" I DID NOT know the lease option was illeage past 3 years in Texas. This continues to prove why I LOVE this forum. Thank you. Grant, I like your idea and I will PM you with contact info to discuss. Thanks again for great input from the group. Again, this was not my ideal type of deal to be doing right now but it looks like it could work. Stay tuned!

Tiffany H. · Answer

@Joe Gore, you can theoretically wrap anything. The bigger risk just comes into play when a loan isn't assumable because it can trigger the due on sale clause. You just have to disclose this to the seller very clearly and if they are in a bind like this guy, it may be worth it. Have a 3rd party servicer/long-term escrow company make the monthly payments and get on the insurance as additional insured. There are companies that specialize in this and some community banks will do it. If the loan was not a VA loan and was made in the last decade or so, my understanding is it will probably have a due on sale clause.

Account Closed · Answer

Grant, I think only Assumable loan can be wrap. Correct me if I am wrong. Joe Gore

Grant Kemp · Answer

Vincent, keep in mind that here in Texas the lease option is on very shaky ground. You can only really do an option period for up to 6 months. Between 6 months and 3 years is legal but you've gotta do a lot of stuff to get there, and an option above 3 years is illegal. This is the ideal situation for an owner financed wrap. You've already approached the sub2 strategy with him? If he's willing to sell sub2 you can take it down that way then market the property as an owner financed property. You'll want to make sure to get all the proper disclosures signed obviously, but this is definitely doable. I don't wanna push any lines of "forum advertising" so mods, please let me know if I can't say this and I"ll remove- but since you're in Texas I am more than happy to help you structure the deal and get you the proper paperworks on this, we do approximately 10 of these a month and all contracts are lawyer drafted by a real estate and title attorney. You'd want to take the property sub2 for the amount owed, bring up the backpayments, and then market the property to bring a buyer in. If the comps really are 110k for retail, you could most likely sell at 120k on a wrap, collect a 10-15k down payment then finance the rest at 8-10%. The most important number out of his payment is the PI number, so knowing that would help us determine what cashflow would look like, but you'll likely be making a great cashflow off of owner financing and you wouldn't have to worry about repairs and tenants.

Shane Johnson · Answer

You seem to have a good grasp on getting started, terminology, and basic knowledge of financing. I will say though, if you think that house will realistically cash flow $210-265 a month, you need to spend more time on biggerpockets reading before you pull the trigger on a deal like this. That or this thing is a new home that needs absolutely nothing, and all majors are brand new, and you plan to hold for less than 5-10 years. If you want to gamble on appreciation, rent it out, PM it yourself, mow the yard and yourself, then go for it and sell in 2 years.

Vincent Hearn Jr · Answer

Todd, Thanks for the reply. Rental comps support $1040-1095! Which is 210-265 in cash flow. At the moment, he's agreed to do the deal Sub2 and is waiting on me to make a decision if I want to do the deal or not. I am trying to figure out the best way to protect myself so I don't get caught making the paments and how I can get a renter or owner finance in the property asap. I have authorization to relase information signed and getting ready to talk to mortgage company to verify outstanding loan balance and terms of the loan. The house is in near perfect condition, I looked at it yesterday.

Todd Plambeck · Answer

What would it rent for? It would be a great deal for a subject to and then rent if the rent allow it to cash flow or to seller finance to a buyer with a 5k-10k down payment.

Vincent Hearn Jr · Answer

BTW, when writing this post. I spaced out paragraphs and when I submit it always seems to mash my entire post together as if I wrote in one big block. Any advice on that would be great too :)