Can I make this happen?

Question

My mother and father went through a divorce a couple of years ago. My father moved to Tennessee and my mother has since remarried. I live in the house that they used to live in (it is owned by my mother). It is worth about $160,000 and could be worth nearly $200k with about $10K in repairs and upgrades. She is willing to let me purchase it for the payoff, which is about $55,000. My father owns a piece of property across the street which has a mobile home on it that rents for $400 a month. He is willing to let me have it for $25,000, it would go on the market for about $38-40K. I had a bankruptcy about 3 years ago, and have slowly been building my credit. I purchased a new truck in 2008 and have my payoff down to $11,500. I also have about $9,000 in other debt for a total of just over $20,000.

I could purchase these properties and pay off my truck and other debt for about $100,000 and instantly have $100,000 worth of equity.

My credit score is about 600 and rising, mostly because of the bankruptcy and lack of accounts. I am drawing unemployment which about $1,700 a month. I have been receiving benefits for almost two years. I was a Sales Manager for for Fortune 100 Company. I went back to school for a year and have recently found myself back in the job market.

What I would like to do is obtain about $60,000 to start a small car lot with about 12-15 cars in inventory. About $40K of the $60 would be inventory purchased at wholesale price. $10K would be cash in a reserve account and the other $10K would be for dealer's license, insurance and other initial expenses.

If I were able to purchase these properties for $80,000, payoff my truck and other small debt for $20,000, receive funding for a car lot of $60,000 my monthly payments would be less than what I am paying now.

Do you know of anyway that I can make this happen in whole or in part?

Joel Owens · Answer

You won't find any lender or private money that will loan out that equity to you. I do know investors with millions in cash that loan out on properties. They loan to people that have the properties literally almost paid off and want to cash out some. Example a house with recent appraisal in the last month is appraised at 800,000. 200,000 is owed on the property. Investor loans 200,000 and secures first position with payoff of the first.They set a high interest rate and if the borrower defaults and they foreclose the lender will easily make the money back plus a fat profit. It depends on each states lending laws and foreclosure process on what you can and can't do. You could find someone who might lend the 60,000 with a high interest rate if the house is really worth 150,000 today. There is not as much risk there in that the lender can foreclose and quickly sell the property to recover costs. With your track record you aren't going to get a loan for a car business. My brother has had his own used car dealership for over 20 years in Georgia. He buys all his cars at private auctions not open to the public for dealers.The rookie dealers always want to bid on the running vehicles which is a mistake. You see they rig the cars to run at auction and then when the dealers take them back to their lot to sell they overpaid for a piece of crap. The dealer finances this piece of crap with some money down and a high interest rate.Most of these buyers live paycheck to paycheck.So when the car breaks down the lot has to pay a repo man hundreds of dollars to recover the vehicle because if they can't get to work they can't make money. The lot try's to sell the car again and finance and keep going that way. My brother takes a different approach.He goes to the dealer auction and buys the "no starts". Usually gets them for 300 to 500 bucks.Puts all new hoses,belts in and takes and puts a new tranny and engine in if necessary.Usually might have 1,500 to 2,000 in it and sells for 2,800 to 4,000 depending on what make and model and year it is. By him working the car top to bottom he sells them for cash and gives a 1 to 2 year warranty on them and will fix things if they have a problem. This way he knows what he is selling instead of something rigged to run at the auction. He usually sells about 100 cars a year.Most of his cars he sells around tax return time.People wait for their returns and save up some cash all year to add to it and then pay cash for his cars. In 30 to 60 days he sells about 75 to 80 cars at tax check time. This way he gets all cash and doesn't have to worry about repo.He also builds a rep of selling quality vehicles with a warranty and whole families buy from home. Makes a very nice return for him and his family.

Account Closed · Answer

You need to look at it from a lender's point of view - why would they lend to you? One pretty important criteria for any lender is that you have some guaranteed means of paying back the loan - even if you are highly marketable, you have either not been able to secure work for the last 2 years, or you have chosen to collect unemployment - either way doesn't build your credibility in the eyes of a lender. You're also trying to co-mingle two things - real estate loans and a small business start-up - two different criteria for loans. Will either of your parents entertain owner financing? I'm assuming that they are both trying to do you a bit of a favor by selling you property with instant equity -- I would try to work some creative financing with them (or other relatives) - I think your chances of going through a conventional lender (at any interest rate) will be extremely slim -- but your best bet is to just start asking around your local lenders and find out.

Jon Holdman · Answer

Seems like you're trying to get one big loan, for about XX, that you can use to buy the house from your mom, buy the lot from your dad, pay off some debt and start a car lot. Even if you had great credit (720+), a solid job and some cash that would be a very challenging loan. To get money to pay off your debt you're looking at some sort of personal loan. Unlikely its going to be at a better rate than what you're paying now. Getting $60K to start a car lot is going to be extremely difficult. That's exactly the sort of small business loan that's really dried up. Even established businesses that have proven track records and some of their owner's own money into them have a hard time getting credit. You have bad credit, the bankruptcy, no job, seemingly no cash to put into this business, and no track record. I don't see how you can possible get this loan. Your best bet might be to try to buy that house from your mom. Rather than trying to get a new loan, which I don't see as being possible with your credit and no job, just take over the payments. You say you're already living in this house. Start paying the payments. If you're not paying your mom rent now, you should be doing this anyway. Write up a "land contract" with her that species how long you have to buy the house outright from her. Get a lawyer to help with this. Get with a mortgage broker and figure out what you need to do to be able to qualify for a loan to buy this property in a few years. There's some risk to both of you. If you do this properly and legally, buying the property from her, even with a land contract, violates the due-on-sale clause in her mortgage. The bank has the right to call the loan. As long as you're making the payments, that's probably a low risk. If you don't make the payments, you'll wreck her credit. If you work hard to clean up your credit and save up a down payment, you can buy the house outright in a few years, get her off the hook on the loan and eliminate the risk of the loan being called.

John Johnson · Answer

I also figure that my interest rate will be somewhat high, I feel that it would be better to accept a higher than normal rate than to let this opportunity pass by. Based on my credit score what would be the range of interest rates that I could accept keeping in mind that I should be able to refinance in a couple of years?

John Johnson · Answer

Thanks for your reply J Scott. I am a very marketable Sales Pro and could return to work immediately. As for my auto, it has a trade in value for over $16K, I should be able to sell it quick for a little more than the payoff. My wife and I have two ofther vehicles that are paid for, so no problem there. The biggest part of my other debt is in my mother's name for an ATV that my wife and I typically ride on weekends. I would take a big hit if I were to sell it. I owe nearly $8K on it and it could take a month or two to get $5500 out of it. I have never had any trouble making these financial obligations. The rest is on a credit card that can be paid off at any time. The offer from my mother to purchase the home I live in should still exist in 2-3 months or perhaps longer. My overall situation with the 3 year old bankruptcy and 600 credit score don't help matters at all, I feel it necessary to post for full disclosure. I just see an opportunity to spend $100K and have over $200K in real property value for a little less than I am spending a month right now. If I had to sell my vehicle in lieu of being able to pay if off as part of a structured deal I would be willing do so in order to obtain these properties. Also, It could be arranged for my mother to increase the selling price by $12K to $67,000 and pay off the vehicle for me, if it would be better to do so that way still acquiring the property for much less than half the value. I am just uncertain of the this would factor into the equation from a lender's standpoint. I am just fishing for ideas and opportunities and thank all of you so much for time and wealth of knowledge.

J Scott · Answer

You're going to find it difficult to get financing at any reasonable rate with a recent bankruptcy, no job and a credit score at less than 620. And I don't mean to be harsh, but given that you're just 3 years out of bankruptcy, and already have a big car loan and a bunch of consumer debt, you're not instilling confidence in your ability to repay. Can you sell your truck to get it paid off, buy a very cheap used vehicle that you can pay cash for and start paying down your other debt? In the meantime, find a job and continue working on your credit. Do all that, and in a couple months you could find yourself in a much more favorable position...

Jeffery Bigsby · Answer

That's a lot but the advice I can give you is to purchase the cars and sell them online, less overhead that way or you can wholesale them to mom and pop dealers and make a few thousand bucks per car, I do it all the time with both houses and cars.