Analyze: Possible Sub-To Rehab (my first)

[Stinson Bland]

After several successful wholesale deals, I’ve been actively looking to take on my first rehab. I came across this deal and I need your help analyzing the situation. Do you think this is a deal?

My seller needs to sell ASAP and she needs to downsize to an apartment. My original offer was $78K but she quickly rejected it. She said she had to pay off her mortgage of $90.5K and couldn’t afford to take a penny less. I offered her a subject-to deal that she was very hesitant to take… so I added $1.5K to help with her move to her new apartment. She wants to do the deal but I'm a bit nervous... I explained to my seller that I’d have to get information on her mortgage and I’d have to get the deal approved by my ‘boss’. I do have a partner that needs to look at the deal before I can sign a contract, so I wasn’t misleading her. This house is in a very desirable part of town, next to a nice golf course. There are homes selling for as high as $91 a sq. ft. but I used a conservative number of $83 a sq. ft. At $83 a sq. I think the house would sell very quickly (under 45 days).

Details:
ARV: $151,000.00 (low estimate)
AVG DOM: 62 Days
Sub-to note: $90,500.00 (waiting to get a statement with monthly payment info)
Owner payment to close: $1,500.00
Repairs: $18,000.00
Built: 1985
Sq Ft: 1830

The house was rehabbed in early 2000’s but needs updating (paint, floor, kitchen, bathroom, lighting, landscape).

With all of the numbers above, my offer is $4.3K higher than 70% - Repairs but I figured I'm recouping that by not taking a HML. I have cash on hand to cover the rehab and I also have a low interest line of credit of $40K that could be used to finance the repairs. I am not sure how I'd fund the project but that's a good problem to have.

I've never done a sub-to deal but this seems like a pretty good opportunity to me. I will have very little money into the deal and it appears that there is at least $40K of gross profit to be made. My only cost would be: $1.5K to seller, mortgage payments, repairs, closing cost, and marketing cost. Am I missing anything?

It should be stated that my partners wife is a realtor, so we’ll save 3% on the sale.

How does this deal look to you?

Thanks for any and all advice you guys may have!

Stinson

[Jon Holdman]

First, $/sq.ft. is a poor way to estimate values, unless you have strong, strong evidence this is a rock solid number in the area. You need to find actual comps and do the ARV estimate the way an appariser would.

You'll need a couple of grand in closing costs. You want to do this transaction at a real title company, with title insurance and proper recording.

When you sell, you'll also have closing costs. Do a "hold open" when you buy the title insurance on the purchase and you can pay just the difference on the sale. You'll also need to consider taxes, which will be a credit on your purchase and then a debit on the sale. They should be getting escrowed with the mortgage.

You'll need insurance. You'll want builders risk or at least empty house.

You'll probably have some seller concessions on the sale.

Nevertheless, if your numbers are solid, this looks like a good deal. Get in and out pretty quickly and even if they call the loan (unlikely) you'll have it sold before they can make good on their threats.