Seller Financing Deal 2 mortgages How To Write Wholesale Deal

[Michael Williams]

The seller is open to creative financing. He has two mortgages on this house that total $103k, he wants to pocket $16 after the deal. I had my realtor run an analysis and the ARV is $182k. He's had the mortgage for 15 years. The first 10 years he paid Interest Only. The next 5 he paid principle and interest. The 2 payments together are $1,200 per month.

My eyeball estimate is $25-$30k repairs.

The first mortgage is $20,119.23

Maturity Date – 02/2021

Interest Rate – 9.625%

The second Mortgage is $83,287.30

Maturity Date – 02/2036

Interest Rate – (until 03/2020) 4.5%

Work:

The bathrooms need to be upgraded and painted. Carpet needs to be removed from 3 rooms and on stairs to the second level. New flooring in living room, Upgrade on the kitchen will include new appliances, upgrade countertops, paint, and floor tiles. There's a Laundry room a master suite with a walk-in closet. There is a kitchen upstairs and stair asset to the upper level from the driveway. Possible inlaw suite or rental.  The entire house needs paint inside and out plus landscaping. Plumbing and roof in good condition. Two HVAC units.

My eyeball estimate is $25-$30k repairs. This is a wholesale deal. 

Need suggestions of how to write this up for an investor? As an investor that wants to buy this deal how would YOU approach this? Example: Pay the seller his $16k, pay off the 1st

and second mortgages to refinance, rehab it with 30K, pay a lower rate and interest after refi while you cashflow with a $1500 month renter?

How would you do it? 

Recap: 

Mortgage 1st and 2nd mortgage totaling $103k with Chase

Owner wants to pocket $16k

Estimated $25-30k rehab

Seller open to Owner finance and other strategies

My wholesale fee $10k

Realtor estimate: ARV $182K

B neighborhood

Vintages homes

1 mile from Cooper-Young District in Memphis

1 mile from University Of Memphis and the Liberty Bowl Football Stadium

2 miles from downtown Memphis and FedEx Forum

[Don Konipol]

@Michael Williams

Have you had a title report done? I’m always leery of deals where the seller wants to “net” a certain amount, rather than where the seller is acting off a firm asking price. I find in this situation there’s often undisclosed liens, judgements, taxes etc. And even if there’s not, the seller will have closing costs, such as title insurance, pro rata property taxes, transfer fees, etc. if the deal is the seller nets $16,000 these add to your property acquisition costs. Further, is the seller represented by a real estate broker? If so we have to add in a commission.

Let's say no broker, and closing costs amount to only $4,000. So now the acquisition price becomes $123,000, assuming no undisclosed liens. The cost of repairs, by your estimate, IF there are no repairs you missed, and IF your cost analysis is correct, adds another $30,000, bringing us to $153,000. A nice healthy $10,000 fee to yourself and the fix n flipper is in at $163,000. Money costs at 14% per annum, minimum 6 months rehab and sale, add $11,410 in interest/opportunity cost. So the investors now in for $174,410. Since your realtor quoted the RETAIL ARV at $182,000, it would probably take MLS exposure to obtain this price. Commission on $182,000 is $10,920. So now the investor's in for $185,330. To sell he'll have to pay for title policy, tax pro rata during holding period, insurance during holding period, and usual seller closing costs, minimum $5000. So investor has paid $190,000 and sold for $182,000.

So, we know this is not a fix n flip. What about a long term hold? Okay, same numbers. Investors in for $163,000. Rental income $1500. The big question, assuming your numbers are correct, is how much is property taxes and insurance on this property when it is assessed as NON HOMESTEAD? If the taxes and insurance are low to medium, the deal might be somewhat attractive to an investor. However, most buy and hold investors aren’t looking to do $30,000 worth of repairs. Especially to end up with a discount equal to what they could have negotiated on a property with no repairs necessary.

Unless you have a buyer lined up ready, willing and eager to do this deal (for some reason that escapes me), I’m afraid you don’t have a doable deal. However, you have learned just how difficult it is to find a situation that allows for a $10,000 wholesaling fee.