How to structure this deal

Question

I have the phone number and email address of an absentee owner in my area that I would like to call this week to try and buy her house. I am trying to figure out the best way to finance the deal with the cash I have available.

She purchased the home new in 1994 for $125K. With a 7% mortage I believe she would still owe about $70K. Houses in the same neighborhood that have sold in the last 3 months are going for $247-$252K. A home just down the street was purchased 7 months ago for $215K and someone renovated it and sold it 2 months ago for $270K.

The property is definitely going to need some work. I could only see the inside of the house through some partially opened blinds so I can tell she is a bit of a hoarder. There are stacks of boxes and stuff everywhere. The back deck is falling off and at one point the weeds in her backyard stood 2 feet above her fence. The front yard has completely overgrown bushes, tools and bags of mulch that have been there for years.

The neighbors informed me the owner moved out of state about 6 months ago to retire and will figure out how to sell it down the road.

Ideally, I would love to hold on to the property as it is right next to another rental property I own but I only have about $65-70K max to spend. I could also use some peer-to-peer lending for some additional cash but cannot get a loan through the bank due to my income and other mortgages. So, if I cannot buy-and-hold I would like to flip the property. Since my funds are limited, is it possible to do a lease-to-own option where I can pay the owner while I rehab the house and then when I am finished and sell it, I can pay her off and keep the remainder?

Another option I thought of is to see if she would be willing to allow me to rehab the property without paying her anything upfront and then we can split the profits once the house sells.

I'd love to hear from others what you think is the best way to move forward considering that money I have available.

David Sugg · Answer

Got to look for the owners motivation. If she is not hurting holding the property she may not want to sell at all.  It may be hurting her but not be on her radar. Just contact her about some ubiquitous issue. Rain / drainage issue, a tree you'd like to remove/ anything with a little altruistic approach will do and use that as an opportunity to feel her out.

About the structure,  I hate a lease option. I like to offer a lease option but not be on the other end of it. It's just an option. She dies and throws it into probate or another deal walks in at 15% higher and your pooched. In the seller financing you have deed and she would have to foreclose if the deal goes south. Anywho. That's why finding out what her problem is is so important.

Lastly you may be able to assume her mortgage.  Give her 30k to walk put 25k  on the mortgage as a good move with the lender and use the 5 for renovations/clean out. Showing the lender what kind of shape the home is in would be a big momentum shift in your favor. Fix it rent it. Hold until prices are even better and 1031 that sucker into your first multifam.

Rick H. · Answer

Don't becoming fixated on having yo give her all cash now. You could give your seller all cash, over a period of time, such as your cash flow permits.

Could you sell the idea of a chunk of money now, another chunk in six months, using part of the down payment toward fix up, or similar logic?

Account Closed · Answer

Have you looked at title at all?  It's very unlikely that her 1994 loan is still open.  It may have been refinanced several times, and my be over encumbered if it was refinanced in 2003-2008.  It may be free and clear.  It may have a big whopping reverse mortgage on it.  It may be in foreclosure.

Find out as much as you can before you talk to her. Then find as much as you can by listening to what the seller has to say.

Christine Oliphant · Answer

@K. Marie Poe - You're right about not needing to assume what she wants before I even talk to her about it. Thanks for your offer on looking up the documents. I may take you up on that shortly! I'm going to go to the courthouse today to see if I can find more info.

Account Closed · Answer

At this point, there's no need to assume you need to give her money.  She very well owe more than the property is worth.  If you want to send me the property address I'll look it up on my data service and see which documents I can view online and see what the loans look like.

Christine Oliphant · Answer

@Rick Harmon - Yes, that is another good option too. Could you explain more how the down payment could be used towards fix up? I'm not sure I follow that piece.

Christine Oliphant · Answer

@K. Marie Poe - I looked up the title online and I see there is a lot of action between 2000 and 2006. I'm going to the court house within the next couple of days to view all the documents. I see everything from trust, deed, assignment, judgement, judgement release and several satisfactions so I'll definitely figure out what all these are before I contact her. Thanks for the tip!

I would definitely like to take over her payments if she is open to that. Sounds like I would likely still need to give her $$ to walk but could keep her loan.

If these ideas don't work, is it possible to set this up so she continues payments while I rehab the house and then we share the profit?

Account Closed · Answer

It is very unlikely you can formally assume her mortgage.  You may be able to take over her payments and leave her mortgage in place. But loan assumptions are rare.

Has anyone here on BP done a loan assumption on a conventional or FHA (or even VA) loan in the last 10 years?

Christine Oliphant · Answer

Thanks @David Sugg. You're definitely right about finding out the seller's motivation. If she is not interested immediately I think she may be interested in it down the road when she has to rehab the house to get it sold while she is living thousands of miles away. It is going to be very hard for her to do a retail sale right now.

It's funny you mentioned contacting her about an issue. I was just thinking earlier today that I should call her to get permission to remove a seriously overgrown bush out of her yard that is overflowing into the neighbors yard and go from there.

I do like the idea of assuming her mortgage. I just need to figure out where to have her find out if that's possible. It sounds like this needs to be worked out with the lender. Is that the case? $30K to walk sounds good but I'll likely need more for renovations. Thanks for your ideas, very helpful!

How to structure this deal

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