Need Suggestions on this MN Deal Structure

[Tim Campbell]

Please offer some input on structuring this deal. Found a seller in Minneapolis metro area. Seller bought a 3/2 SFH as a bachelor pad. Recently married and wife has two kids. 900 SF home is now too small and they would like to move to a bigger house but no money for a down pymt.

Current debt on home is $108k.  $100k 1st and $8k 2nd.

As-is sale value is $114k.

$7-10k in cosmetic repair will push ARV to $130k-140k ARV.

Seller doesn't have any savings.  Willing to break-even on the sale but also needs some cash for down payment on next bigger property. They may qualify for a down payment assistance program through my lender.

What kind of deal structures do you think might work?

[Tim Campbell]

Motivation:  Deal is not on the market at this time and they don't have to move.  They just want more space but no money and low equity in as-is condition.

[Charlie John]

@Tim Campbell I posted this type of question a few weeks ago, but didn't receive much of a response. My question was how could I provide a service to help homeowners that would like to sell but their house needs light (or heavy) repairs to get top dollar? It's a service geared more for people who may not have the money to do it... I would front the money to get the repairs done, get the house looking as best as it can so it sells for top dollar. Then after the sale I would get paid back.

Wouldn't this type of service be extremely helpful in your situation?

If it needs 10k, I lend them the 10k (my company would act as a the contractor doing the repairs) and then get back 15k or something like that once we close.

[Tim Campbell]

Charlie, that would be a great service, however, there would have to be more equity in the deal to mitigate the risk.  For this one, the equity is too skinny.

I was thinking about offering to buy the deal as a 2-3 yr contract for deed. Purchase price would be $84,000 at the end of the 2-3 yr balloon. I'll give them $5k as a down payment and take over the small mortgage payment.  I would fix up the house for $7k and then lease out the property to a tenant with an option for the tenant to buy.  Win/win...seller gets cash for next house, cashflow for 2-3 yrs for me and my tenant gets a nice freshly remodeled house.

The only cavet is that the mortgage broker told the seller that since they still have the mortgage in their name it would count negatively against their debt to income ratio and they wouldn't qualify for the next home.

Looking for alternatives.

[Marc Jolicoeur]

Tim,  What will it rent for?  Good Location?  

I think your win/win/win idea is a pretty good one.  Get the tenant buyer to put 10% down as option fee and that would recoup your costs for rehab and the $5K you put down.

Another option is to short sale it.  Get the bank to short sale it for $84K and then put the seller in another rent to own house.   

Marc