Looking for Advice with Subject-To with Delinquent Payments

[Daren H.]

I have done a subject to transaction in the past which turned out well. I have a current seller who is willing to do a subject to deal. Here is the scoop. Seller says he is ~$5,400 behind on payments. We discussed seller’s desire for at least ~$7K - $8K cash walkaway money plus buyer pays reinstatement amount ($5400). Seller stated the loan balance is ~$98K. Monthly payments are $920 (includes taxes, insurance). The Seller is an absentee owner and renting the property to a Section 8 tenant on month to month lease at ~$1,125.

I calculated the ARV at ~$165k- $170K, rent $1400 - $1500 range, based on comps. Based on verbal condition description of the property I estimated a ball park of $15K for repairs (seller claims it just paint and flooring but you know how that goes). My primary focus is buy and hold. My plan, I would not extend the lease of the current tenant and allow them to seek a new residence by end of school year. I would be looking to fix up the place, rent it to qualified tenant at market rent, at the 6 month ownership point (from purchase, not fix up) I would refinance at 75% LTV (could refi sooner but only at 70%).

So I am working this through my head. I would take the property with the $98K loan in place, pay the reinstatement amount, pay walk away cash to seller, pay for rehab, closing, etc. I estimate this at a ~$30K cash outlay. The rent received will cancel out the mortgage; however, I likely would have a month or two vacancy period with the rehab and turnover. If after 6 months the property appraises for ~$165K as estimated, I could get a loan of ~$123K - ~$93K ($98K- $5K reinstatement) owed to retire original loan, leaving ~$30K cash out which is essentially getting cash invested back and still holding the asset. A summary of the key numbers:

ARV: $165,000

75% LTV: $123,750

Rehab: ($15,000)

Cash to Seller ($7,000)

Reinstatement: ($5,400)

Closing Cost ($2,600)

Rent $1400 - $1500

My primary focus is getting the property under contract now and work out the details and numbers afterwards as information becomes official. The seller is going to want his cash at closing. The seller is showing me the property in the next day but I want a contract signed in advance if possible. How would you propose this deal to lock it up under contract? The subject to I did previously did not include the delinquent payment factor. What other questions or information should I be attempting to get from the Seller? Advice appreciated!

FYI, I would not be putting the Seller at risk. I could make their payment timely with no issue even if not receiving rental payments.