Analyze this deal - Buy Note - Flip - or Hold

[Justin Morgan]

Seller Contacted me...
Seller is 4 months behind... owes $80k +$4k arrears.
Found out its a private note...
Called Private note holder, OLD guy wants some help foreclosing on the sellers.
Home is worth $75k
It needs $5k in repairs.

The note holder will sell his note for $60k to me OR he would be willing to finance.

The Plan:: I'll offer him $55k not a dollar more and buy the note. Fix the home I'm into it $60k. Sell for $75k minus close NET $10k... PLUS: The seller is wanting to figure something out for the Arrears and negative equity. I figure have her take a prom note to me for $10k or $5k cash and we are done.

I'll NET $10k-$15k.

This is all contingent on ME not having to foreclose on the seller. I'll get a dead-in-lue signed before I buy the note (maybe?). The cost to foreclose would be $5k to the note holder... it should be easy to avoid for me because of a positive relationship with both parties.

Can I use him as private financing and hold this home?
Should I pay him the $55k and flip it?
Other options I might be missing?
Does the Prom note idea work?

Thoughts??

[Will Barnard]

Here is the problem I see. Borrower owes $84k and climbing. Home is only worth $75k and that is after $5k in repairs, so really, only worth $70k in present condition. That places homeowner close to $15k upside down. That could equate to a strategic foreclosure by borrower.

On the buy, rehab flip side, the spread is way too thin. Your numbers posted place you at over 80% all-in and does not account for foreclosure or cash for keys costs.

Buying the note and holding for cash flow would be good if this was performing, it is not. To get this performing, you need to know why borrower is behind and not making payments and IF they could afford to pay if you modified their loan. To do so, you would need to get this well below your numbers mentioned to allow for room to forgive principle and get the borrower in a small equity position.

Sample: If it is worth $70k, then a restructure of the note to that amount ammortized over 30 years could get the payment low enough for the borrower to afford it and in a non-negative equity position.
To get a decent retrun on your money, you would then have to get this note at well below that.
Without the interest rate (current), I can not provide info on what to offer based on what would be my guess of your minimum yield requirements (that info would be helpful too)