Seller finance to owner occupier as tactic for high equity, no cash?

Question

This is a hypothetical question - I am trying to sort out different strategies!

The scenario:

I have almost no cash, but I am able to put a property 'under contract' for $1000 (must be cash, non refundable). The price is 100k, ARV 250k. Minimal rehab required. I am then looking at selling the property to an owner occupier using seller finance (with all the relevant Dodd Frank stuff done), then selling the note for a lump sum to improve my cash situation.

The catch? The contract is not assignable, and the 100k must be paid within 8 weeks, or I am in deep poo poo legally (go with me on this!).

My questions:

1) should I put down my horrendously scarce cash on a deal like this in the first place i.e. Possibility of not being able to fund the 100k in time? I can't get a standard bank loan. RISK??!!??

2) Does this sound like a viable plan for maximum return? I'm not really into landlording or wholesaling.

3) I don't know much about notes? Are they hard to sell? What would you be likely to get for this note?

4) if I have to wholesale, what sort of price should I be asking?

5) if either of the above worked out, I would pay out the investor. What sort of return would they have been looking for in the first place?

6). A deal like this is likely to be a one off, but is my scenario likely to work with less equity / lower priced deals ie 'normal' ones?

P.S. The above is potentially a real deal, but I just don't have enough knowledge / experience to know if I should go for it or not, or if I get it, what is the best thing to do to? HELP! Head going around in circles!

P.P.S. Are there any mentors out there for this sort of thing, as opposed to 'gurus'. If so, what are they likely to charge? Have spent heaps on guru courses (before I found bigger pockets- one of the reasons I have no money!), and this is sort of a mish mash of probably improperly grasped things, rather than one 'standard' strategy. All help / suggestions appreciated!

PPPS I am not asking for specific offers of funding at this stage - will go to the marketplace for that if necessary. Just want to try and get my head sorted!

Rick H. · Answer

I know the first time I ordered a hamburger in AUS with "the works" you get a slice of red beet. Interesting combo. I have a friend in Bomb Beach and had a wonderful time in your town some 20 years ago.

Cultural differences aside, finding real estate needles in haystacks on a serial basis has been my forte for decades. Candidly, I only work CA because I know the state and have become very familiar with many of the laws that apply to the situations I like to work.

If you're an active investor from a foreign land, I solute you for taking action when others miss opportuntunities in their own backyards here.

Deborah Tuck · Answer

hi Rick,

It's not so bad from melbourne - at least it's warm and sunny here now! Have been doing RE in the u.s. For about 5 years now, and find the biggest problem is not location (you'd be pretty limited if you only ever invested in your backyard), but the time barrier can be - I am not a night owl!

Language barrier was worst in Alabama - have had to point to the menu board and hold up fingers for the item number to order a cheeseburger in McDonalds there!

The property itself is not poo poo, it's one of those needles in the haystack you sometimes find in odd places if you go through enough lists - I like to think the needle is a knitting needle rather than a sewing one....!

It's because it is such a good deal that I am out of my normal knowledge zone...!

Rick H. · Answer

Sounds like poo-poo is an operative word here. Hope I'm wrong.

One of the advantages of getting a licensed hard money loan would be the lender would presumably open escrow and obtain title insurance and as part of their underwriting, keep you somewhat out of trouble if the collateral is really a pile of poo-poo.

That's where the value of a seasoned HML may help to keep you out of trouble.

Beyond that, you'd really need to do your own research for your exit plan to work. HML wants their money back in a year or do. If you're willing to pony up the money out to pay off prior to resale, your scenario could work.

Glad I'm not trying to do so from Melbourne with time (and language) barriers with the States.

Deborah Tuck · Answer

no, the catch is it is a tax deed, but has clear title. When you say lender I presume you mean hard money, but what do you mean by 'true partner'? Private investor?

Should I just advertise in the market place?!

Chris Martin · Answer

If "The price is 100k, ARV 250k. Minimal rehab required" is actually true, then keep it simple and find a "partner" (a lender or a true partner) to get past your 8 week balloon issue. Those numbers are hard to believe in a 2015 market, so I'd suggest (without seeing anything about this deal) that there is something you are missing or not taking into account. Is the seller a relative by any chance?