Deal structure advice

[Chris Matthews]

Good afternoon all,

I am working on a deal and I am not sure my client can be helped. Long story short, dad died in April, Mom is getting put in assisted living, unbeknownst to the kids the parents took out a reverse mortgage loan and owes $136K. They are looking to get $170K for the home which is the taxed appraised value.

The house itself is a 5 bed 4 bath 3048 sqft built in 1970 and has a pool. The home has an aluminum roof that has a lifetime warranty, 2 years ago new electrical was put in, 8 years ago plumbing, new HVAC system including new flex a year ago, new pool pump and timers. The house is outdated, ugly wall paper, laminate butcher block kitchen counters, appliances are old but they do work, and needs a coat of fresh paint.

The comps don't support $170K if you were to buy as a fix and flip. 2 homes sold this year same size for $240 and $250 but the pictures show they are completely remodeled. A few others that are selling in the mid $180's to lower $190's but they are updated with new floors and paint.

It would however make a good rental property. Rents in the area are going for .62 a sqft giving it a market value of just under $1900 a month. Property taxes are 2.7% on $170K.

So my question is does anybody have any creative ideas? I already floated past them me taking over the loan and giving them a balloon payment within the next couple of years to get them to the $170K but they need that money now for mom. My credit is on injured reserve at the moment so I couldn't take out a loan.

Should I just put it under contract and wholesale as a rental?

Thanks in advance for any advice. 

[Mitch Messer]

Hi @Chris Matthews! Depending on how much renovation is needed, you might consider wholesaling it to a rehabber with short-term financing by wrapping the existing mortgage. We did one of these last year: The rehabber got no-qualifying, non-recourse, zero-prepayment-penalty financing at a great rate (7.8% vs. hard money at 15% and 5 points). We got a faster sale and a higher price than if we'd sold it as a rental. The financing term was 6 months, which was long enough for the rehabber to do an awesome job on the renovation, list it for sale, find a retail buyer, and then cash us completely off at closing.

We made the rehabber's monthly payment to us just slightly higher than our monthly mortgage payment. The purchase price was $149K and we asked for $15K down. Repairs were probably under $40K. They sold for $230K.