How to get in on this deal

[J.R. King]

I have an opportunity to get in on a condo for $92,000 in Michigan (not Detroit). It is 1400 sq ft, 2 beds, 2 baths, 1 car attached garage. The condo was built in 2003. It needs new linoleum in the kitchen and bathrooms, and new carpet. ARV is $152,000. There is a tenant in it currently for 9 more months at 1100/month, but market rents are 1300/month. HOA fee is 155/month. There are multiple exit strategies. You can try a cash for keys with the tenant, and flip it quicker. Hold the property for 9 months making rental income, then flip it. Or fix it and get a new/same tenant in at 1300/month rent. I'm assuming I could wholesale this deal to someone. However, I would much rather take this deal for myself. My dilemma however, is that my credit is shot to hell (like 500 bad). I have student loans, medical bills form a bad accident, and some dumb stuff from when I was younger. Now that I'm making really good money as an agent I'm paying things off. So is there a way that any of you can think of, besides having $92,000 laying around or asking friends and family for it, that I can get myself in on this deal with bad credit? Should I just wholesale it? Is this a good deal?

[David Dey]

@J.R. King the answer is that it does trigger the due on sale clause.  However, right now with the current state of interest rates being as low as they are, the banks are not foreclosing on that issue.  It doesn't make sense to them to foreclose if the payments are being made.  

However, check with a knowledgable real estate Atty in your area to see if your state specifically prohibits land trusts.

If not, then you might use a land trust to take the property in.  Name the trust after her.  "Jane Smith family land trust," for example.  ( there are a number of posts that go step by step through the process)

The lease option is probably the safest because it doesn't necessarily have to be recorded to be valid.  The issues I see regarding this option are:

1) if you don't record it, they may try to do something around you.  

Answer:  record an affidavit of memorandum regarding a contract.  You will put a cloud on title that will have to be cleared by you.

Answer 2: have her sign a lien on the property of some sort to you that will expire when your option expires or cancels if you default.

Answer 3: Again put the property into a land trust with a third party Atty as trustee and the lady being the beneficiary.

(This part does not trigger a due on sale clause at all as she is still the owner here)

Then, do a contract for beneficial interest, this is like a L/O or an agreement for deed except it is for beneficial interest of the land trust. This solves 3 issues, 1) with specific instructions by both parties to the atty trustee, both you and she will be covered regarding going around you, and for her default.

2)  this also resolves the issue of what happens when you exercise your option in 9 months and need her to sign the deed.  The trustee has full power to sign.

3)  this will also clear up any issues regarding any seasoning issues for the time you want to sell the property, since the property will be seasoned in the trusts name those 9 months, or if sold immediately, the trust is still named the "Jane Smith family land trust so it was her putting the property into a trust so she could go out of country.  (Just a thought)

Which actually leads to a really simple solution. How about a net listing agreement with her to sell the property for what she owes and keep the difference. I thought I saw you were a realtor. (You will have to spell out the details very specifically, as disclosure is key, especially with such a large profit. However, your argument is that you are also improving the property and managing it thus deserve a larger cut) you will also need an LPOA to sign the deed.

If you are not a realtor, the same can be done with a partnership contract where again a third party atty has an LPOA with specific instructions to sign the deed at your direction and dispurse according to the contracts specifications.

Hope this helps