Owner Finance and Refi to VA

[Katherine Menchaca]

Hello fellow investors,

I'm about a year and half into investing and have the possible opportunity to acquire owner financing on a very dilapidated 4 bed/3 bath pool house. The owner owes about 167K on the mortgage and wants to get rid of the property because the contractors she had, gutted the living, bedroom, and dinning area to give it an open concept without her approval while she was away. She lives in another house and just wants to break even. Now it's just a headache for her to look at and has it on market.  It's a 1940s home with a purchase price of 174,000.

ARV 330K-350K

County Taxes 4700 annul

Cost of Repairs $80-90K

I don't know anyone personally who has experience with seller finance recently but I'm aware that I have to be careful with the terms and ensure that the house is registered with the county in my name, I also have to ensure it's written in the contract that the owner will pay her mortgage loan as we pay ours. It's also important to pay on the principle and not Interest-only .I'm not quite sure what the wording will look like yet. We will acquire a heloc/line of credit OR establish a business credit line for the repairs. 

 I'd like to make this offer:

1)  $6,500 Down   (I may have to provide 8K as a counter offer)

2)  Deferred Payments for 6 months (payments wouldn't begin till the 7th month)

3)  $1,000 monthly Payment which begins the 7th month (Not quite sure if we can custom select a monthly payment or if it must be calculated a certain way via Owner finance)

4) Refinance at 8-12 months with a VA loan (2.5% fee) or other loan to give her the remaining balance once fixed up.

5)  174,000 Purchase price plus the additional interest gathered over 12 months which should calculate to around 176 -178,500 for her.

We anticipate the house to be complete in 8 months but considering its located away from the big city and resources, I expect delay. The plan is to inspect the pool and rent it out by the hour/by the weekend to bring in a little cashflow while we work on the house because it's south Texas, and it gets very hot! I Plan to live in it for a year after complete and then turn it into an Air BNB for medium rentals. I'm a little uneasy about the holding costs during renovation if she wants 8K down and pool maintenance. The house does have an attached side "casita" or studio type room that's on a separate electric and water line which has potential to generate income as well. Exit plan would be to sell it after a year of living in it if the expenses get to be too much. The goal is to keep the mortgage at or under $1,500/mo. We may even choose a 3.5% refi-loan if we can choose to live in it for only 6 months. If there are any major holes in this plan of action, I'd certainly appreciate the input. I appreciate y'all!

-Katherine

[Guy Gimenez]

Since you're new to investing and to the O.F. strategy, get some help evaluating the deal. You don't mention the sq. footage of the house, casita or the condition of the pool...so $80K rehab could be off significantly, more especially on a "dilapidated" home. I've rehabbed a ton of 1930's to 1950's homes and there are surprises at every corner. Just finished two  800 to 1,000 sf 1950's, 2 bed, 1 bath homes and just the rehab alone was over $50K on each. Material prices have increased dramatically. Labor costs, for a good quality contractor, have also increased. IMO, renting out pool is a horrible idea and will likely void your insurance on the house. Get an attorney or RMLO to help with the owner financing...you don't know what you don't know.