How to do this deal

Question

Ok. I have an interesting question for you guys. Purchasing property from relative that no longer wants property. I need a place to live so this is right up my alley. So far...Good. Relative selling to me for 15k needs about 6-7k in repairs. ARV based on area comps roughly 45 -50k on the conservative side. Property located in Georgia.

I'm going to be putting 5k down and relative will carry note on remaining 10k. Have to put the 5k down because he needs the cash. In a perfect world I would just get a mortgage cash him out, take care of repairs and possibly put some money in my pocket. Unfortunately, I probably can't qualify for a mortgage due to credit score (low 600).

So, here's the question(s);

1. Since this will be owner occupied (me), will a hard money lender even look at this deal?

2. Once we close, is there a way to refinance out of the seller finance fairly soon to get seller out of picture and make necessary repairs since it has a pretty good ARV?

3. How would you handle this deal if you were in my shoes?

Thanks in advance for your help.

Ned Carey · Answer

In my area hard money lenders will not touch owner occupied because of the additional regulations.

Whether you can refinance out the seller right away will depend on local lending trends. Since you have a low credit score the refinancing right away does not seem like a practical alternative. It would probably be easier to get a loan to purchase in the first place rather than refinance.

This appears to be a good deal as is. I would just do it as is, and consider refinancing later if that becomes a possibility.   Good luck - Ned

Michael Lemieux · Answer

Hi @Mj K., no advice, just enjoyed reading this post and hope all works out well for you.

Chad Carson · Answer

Mj,

I personally like seller financing deals better than getting a bank mortgage and certainly better than hard money. Unless terms are just horrible, I wouldn't change a thing.

What are the terms, by the way?

Are you concerned about raising the cash to do repairs? Or do you just not want to owe your relative?

If it's the cash for repairs, try to get creative with it.  Invite some handy friends over for a pizza-paint-repair property, and depending upon the type of repairs you can get a lot done on the cheap. Do the essential repairs first, and then live with it until you can save up for the other repairs.

If you can scrape by and find a way to make this work, you've got a SUPER low priced property, non-bank financing, and you could eventually turn this into a rental or sell it down the road.

Bill Gulley · Answer

Well,

#1. No.

#2. Your loan amount will likely be below minimum loan amounts at 75% LTV for a cash out at that future value and certainly too low just to refinance the seller.

#3 What is your relationship, distant uncle or brother as it makes a difference to seller financing. I also assume there is no mortgage on it.

While the best way to buy will be seller financing and amortize it to be fully paid off, you may have SAFE Act issues. You might purchase a one half undivided interest with you cash or less interest like a third, that puts you in title and in a different position the buy out the remaining interest from a family member, a better way to address financing issues. I'd suggest you see an attorney! :)

Chad Carson · Answer

Mj,

Glad you got it sorted out.

$10,000 at 5% for 36 months is just under $300/month, so if you can afford that and repairs you'll be free and clear in 3 years!  Then just enjoy the freedom of no mortgage payment, or if you need more space move out and pull in that rental income to help with the next residence.

I like your plan. Best of luck to you.

Chad

MJ K. · Answer

Stephen,

it's a 2/1 brick 1100 sq ft ranch. There is no real reason to want him out, just want to get him paid since he's kinda in a tight spot for cash right now.  My new plan is to just pay it off fast. Not much in to sharing my space, but that would be a great idea for someone else.

Again, don't really need to come up with cash in short order, most of these repairs are minor and can be cashflowed over time. It was purely a case of my eyes getting bigger than my wallet. You know the saying..."champaigne taste with beer money". I just needed you guys to put me back on the right track.

Thanks

Stephen S. · Answer

So what is the deal / property?  And what do you want 'him' out?  5% isn't such a bad deal.  What is the term?  If you cannot finance then cash-cow him out.  Is the property more than just a bedroom for you?  Can you do a house-share to come up with the cash in short order?

PHM

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MJ K. · Answer

Thanks guys for the responses.

Ned, you're right. It is a good deal "as-is"

Chad. The terms are 5% amortized over 36 mos. to answer your other questions....it's a little of both. I want to knock out the repairs (nothing too major) and also get my relative paid out.

The more I think about it, the more I'm starting to realize that this is a situation where I just need to  slow down and take care of the repairs over time and enjoy the blessing of an owner financed home. There's really no immediate repairs that's needed except for upgraded appliances, a little paint and floor refinishing.

Again...Thanks. You made me think this out a little better.

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