Owner financing question - Please help.

[Pyrrha Rivers]

Hello BP I posted this question elsewhere but got no response so I'm posting it here.

I had a family friend approach me wanting to sell a town home he had as an investment property for a few years. He has fallen on hard times, the house is in a nice neighborhood but in need of repair and the owner is in need of money.

I asked if he would be willing to do an owner finance deal. He said yes, then asked the dreaded question...How do we do that?

I wanted to run and hide under a rock because the only answer my brain could come up with was "I don't know". But instead I said "Let me run some numbers and I'll get back with you". So I'm here to get some help before getting back to the seller.

Here are the numbers:

Price he is asking $43K (to pay off his loan).

ARV Here is what I've done to try and figure this out. Not many sales in the area and just a couple similar properties within the past 6 months. (Didn't ask a Realtor since this is a by owner sale).

County assessed value $47K

Taxes $1160

Comp #1 sold 2 weeks ago for $67K (No interior photos).

Comp #2 sold for $76K in June (Average rehab).

Comp #3 currently on the market for $95. 34 days listed, so it may have to be reduced to sell (Rehab was beautifully done).

Based on these comps I assigned a conservative ARV of $67 to stay in line with the lowest comp.

Owner says it will rent for $750 - $800. Rentometer says $995. I use $800 in my calculations because the home does not have a garage and the bedrooms are small.

Now here is my brainstorm but fear that what I am thinking may not be legal, so I need some guidance. (Is this a brainstorm or a brain-fart?)

• Purchase price is $43K
• I can get a loan for a minimum of $50K
• Can I pay $50K and get $7K in concessions from the seller? (I’m thinking this is not legal and if so want to stay clear from it, but I’m not sure).
• These concessions can be in the form of closing and repair costs to reduce my out of pocket expenses.

This will allow the seller to receive his sale price right away and will allow me to purchase the property for $10K down plus repairs and have a tenant pay for the house.

If I can’t get the concessions and don’t want to use hard money, what can I do?

How can I structure an owner financed deal? (I guess could fix it, wait 6 months and refinance to pay off the seller. How much of a down payment should I offer in that scenario since I have to complete the repairs and wait for the cash?)

Thank you so much for taking a look at this and helping me figure it out.

[Curt Smith]

Hi Pyrrha, John has a point re not clear.  But I've guessed as follows:

- seller isn't asking for any cash, just to be out from under paying the monthly mortgage (amount ??).  I say this because he's willing to sell for the balance of the mortgage.

This what I propose:

#1 deal choice is to buy subject to the existing financing.  Total cost here in GA is the closing attorney fees, buyers title insurance etc lets say $1500-$1800 total.

Subject to is the most complicated deal with a lot of moving parts and documents FWIW, but it would move the deed into your name and YOU would then pay the mortgage. You will need to make rent ready out of pocket. Or find a financial partner who'd front the rehab cash and share in the cash flow. Your local REIA will be the source of the investor. I recommend GaREIA.org where I go.

You then rent or rent to own depending on if the seller is ok leaving the Note in his name forever or at most a few years. 

#2 long term lease option.  You then rent or rent to own (making a sandwitch lease option) to a tenant buyer.   Structurally this is no different than above.  Buying subject to is preferable since you own the home.  Lease/option from a seller is only a tactic you do if the seller is not comfortable with selling and leaving the Note in their name.  This is riskier for the investor since often the seller is still making the mortgage payment.  If I had to go this way, I'd make sure I made the mortgage payment via ACH to the lenders account.

Both of these deal types are searchable on BP and the internet.  Both are "creative" deal types requireing little cash from the buyer nor having to qualify for a bank mortgage to buy (control).