Does this sound good?

Question

Property (965 sq. ft.) ARV ~ $40-45,000 (based on similar homes in area)
Assessed @ ~ $29,600
Asking ~ $19,000
Rehab ~ $3500 (rough estimate)
Small 2 Bdr on an acre out in the country.
Owner owes nothing on it.

What do you think my best options are on this one?  I could rehab it and try to rent it, contract and assign to a rehabber, or rehab/flip myself.

Some thoughts/suggestions would be helpful thanks.

Stephen Hare
REI Newbie
NW Tennessee

Will Barnard · Answer

Yes, you would need to convince the seller that coming to the table with the 3k for repairs is more beneficial to him. If there is enough room in the deal (which from the numbers you posted, there is) you could even offer for him to get say $20k+ for the purchase price giving him 1k more than your original offer if in return, he agrees to come to the table with the 3k.
Motivation is key here so if you do have a motivated seller, you should be able to convince him to do it your way.

Once you have it locked up, feel free to email me the details and I will look into it, assuming you can't convince the seller to work this plan.

Stephen Hare · Answer

Where would that 3k for deferred maintenance come from though.  Out of the seller's pocket?  They would indeed need to be motivated to do that.  I would need to point out to them and make them see that they will be making more money off it in the long run I understand that.

If you would like I can e-mail you the property information after I get it under contract.  Then you can pull your own CMA using your own tools and resources.  I'm new to this and my numbers aren't as close as most would like, but I get the basic idea of comparables.

Will Barnard · Answer

If you don't have the rehab cash, perhaps you can get a private loan for it, otherwise you may try and ask seller to give you a note for $19k+, have the purchase price be $19k, & stipulate that seller is to give buyer $3k for deferred maintenance. Then you have 100% of acquisition and rehab all financed.

Second option is to find a private investor / cahs partner to bring the money to the table, both acquisition and repairs. 19k loan on a $40k ARV property is less than 50% LTV.

If your numbers are actually that, I may be interested.

Common exit strategy to pay off balloon:
Sell property, cash out refi in 6 months-12 months with conventional loan.

Stephen Hare · Answer

I don't have a lot of monthly income to play around with between renting the house i'm living in and living expenses.  Where would the rehab money come from so I can get top rent for it?  I would also have holding costs until I got renters into it.  And what would be some of the most common exit strategies from a balloon mortgage.  I understand the principle behind the balloon.  I can still go ahead with my purchase agreement tomorrow to get the property locked under contract and then figure out the financial details after.  If I came at them in a couple weeks after I couldn't find an Investor and suggested them carrying a note we could amend the old agreement or just tear it up and make a new one?

Will Barnard · Answer

Ask the owner to carry the note.
Here is your sales pitch:
Rather than getting all your money now and paying more in taxes, why not hold the note for me and get more money for your property. I am willing to pay you an extra 6% more if you hold a note for me and your tax exposure will be dramatically reduced. Tell me when you would like to have the full note paid off, one year, two yeras, etc. and we can put a balloon payment into the contract (make sure you have multiple exit strategies to perform on the balloon payment).
This benefits you as nothing on your credit (so long as you perform) and very littole closing costs, no bank qualifying (screw the banks!), no 3,000 bank docs to sign, and the owner gets his $16,500 + more via the interest and he reduces his tax exposure (deferes it).

Stephen Hare · Answer

Thanx ! My plan is to assign this to an investor if I can find one interested.  If not i'll need alternate exit strategies.  Been tossing around the idea of holding onto it and renting it out.  I have no credit but my wife pre-qualified for 25k @ about $220/mo and we would be able to do all the work and get it rented for 400+.  Could be a nice little piece of positive cash flow.

I'll keep y'all updated.

Steve

Jon Holdman · Answer

Congratulations!

Stephen Hare · Answer

My offer of $16,500 was accepted ! Will be completing purchase agreement tomorrow.

Stephen Hare · Answer

The neighbors house is about the same size and in about the same rough condition and has FMV of 45k.

Jon Holdman · Answer

If its really worth $29,600, you'd want to be into it for under $20,700.  That assumes values are reasonably stable in your area.  That puts your max purchase price at about $18K, less your fee if you're going to wholesale it.

However, assessed values aren't accurate.  You need to figure out what its really worth.

What would the rent be?