How do I make this deal work and assignable? HELP PLEASE

Question

I have 2 properties currently in the pipeline in Chittenden County, VT that do not meet the 70% rule. I got both owners down to a below market value price where both property owners can pay their mortgage and have a little cash to move. One is in Burlington downtown and needs work but the mortgage on the property does not allow to me get it at wholesale because of the owners moving and wanting some cash at hand. The house needs work (Under contract at 177k, Repairs 30k, ARV 246k). The other one is in Westford. The property is solid and needs cosmetic. I also got the owner down to a price that is below market value with the owner wanting to walking away with 7k along with paying what he owes the mortgage (Under contract at 160k, Repairs 5k, ARV 205k). Here is where I need assistance. Should do a subject 2 for both properties in order to have a bigger pool of interested buyers that way I can assign it more easily. I'm not sure how else I can make this work when the property is not owned free and clear and the mortgage amount seems to be a conflict in making this a traditional wholesale deal. HELP PLEASE!!! :)

Ray A Delfi · Answer

@Albertinny Colin guess you didn’t need help that bad...

Ray A Delfi · Answer

@Albertinny Colin I got some quick number checks on one of your properties: property 1:1% Rule: $1950 / $246k= .7% (Fail) or 2100 .8% (fail) If rent was 3500 1% (Pass)50% Rule: 2100 / 2 = 1500- 700 (P&I) = 700 (pass)Note these are only guidelines not an actual rule. Unless you know all the actual expenses will you actually get a better handle on the deal. I did this with your assumed ARV but I did a quick comp in the area and it’s about $250psqft what you have on property one is over $300. Now I saw a Duplex sold for on the same street for 289k 1250sqft very clean and a light remodel which was purchased for 170k in 2017. If rents are what you say they are they are netting almost 4K a month in rental income. Your property is a SFH with only 800sqft. I hope this gives you some perspective. Again there is a ton of information I’m missing and by all means am I saying you don’t have a good deal. Best thing you can do is be super honest with the numbers get your repair cost quoted by a professional and use one of the BO calculators and post it in the market place. You still have time!

Albertinny Colin · Answer

@Ray A Delfi Great points. Yes they currently are.

Ray A Delfi · Answer

@Albertinny Colin I’m actually driving now (shame on me) but at a quick glance the rent for an area were the average household income is 47k is really high. If the mouse hold income was around 65k-75k the rent would be good. When I get off the road I’ll give you a full analysis of the properties and show you what I look for in a deal and how I came up with the numbers. Hang in there, are they currently under contract?

Ray A Delfi · Answer

@Albertinny Colin definitely stick to the 70% or less rule minus expenses. The only option here is to be able to assign it as a subject 2 deal were the seller gives you or the assignee the title while they hold the loan which would allow you or the assignee to fix up the house put it under a conventional loan and close out the loan with the seller. Or continue with repairs to rent out the property with the intent of making cash flow on the property or eventually selling it. If you hold it the income needs to be more than your expenses and loan. Does’t sound like you have much room to squeeze out cash flow here. I would definitely walk away IMO with everything here I know I wouldn’t want this property and would never ever wholesale a deal that I wouldn’t take myself. Remember your reputation is more important than that one deal. You have to be very conservative running the numbers and have several exit strategies in place before you move forward and to be able to walk away. I feel you still may need to go back to the drawing board and get some more learning in. Podcasts everyday, read the books here on BP, there’s a whole scaling guy, Max Maxwell that I followed for a while, he built a wholesaling empire. Wholesaling is a ton of work, with a full time job and a business to run, I found buy and hold for me is the way to go. Feel free to reach out if you need any more help.

Albertinny Colin · Answer

@Ray A Delfi Here is a bird's eye view of the numbers. LAFOUNTAIN ST BURLINGTON, VT 05401 3 BEDS, 1 BATHS, 800 SQFT, 2,614 LOT ARV: $246k CURRENT VALUE: 196K REPAIRS NEEDED TO RENT: 15-20k RENT FOR SIMILAR HOMES: $1,950-$2,100 MORTGAGE AMOUNT: $166,700 AVERAGE HOUSEHOLD INCOME: 47K HUNTLEY RD WESTFORD, VT 05494 2 BEDS, 1 BATHS, 711 SQFT, 3 ACRE LOT ARV: $204k CURRENT VALUE: 193K REPAIRS NEEDED TO RENT: 3-5K RENT FOR SIMILAR HOMES: $1,800 MORTGAGE AMOUNT: $153,570.67 AVERAGE HOUSEHOLD INCOME: 81K

Albertinny Colin · Answer

@Ray A Delfi Oh no trust me, I need help lol. Thanks for your reply! I have only completed one traditional wholesale deal in the past. I am a little familiar with Subject to's but still uncomfortable with structuring them. I have no cash on hand to facilitate the transaction and my goal was to get them to sign an agreement in which a down payment amount would go to them at closing and then assign that agreement over to another investor. I am confident it's a good deal but wouldn't know how to handle hard-money to close on it by myself (intimidated and uneducated). I estimated the repairs for the Burlington downtown at a fix n' flip. If it was to be rented out, it would definitely be less. Homes like this rent for $1,950-$2,100. LTV is 196,000. The Westford property needs a window replacement and maybe a touch up on the front and back deck. That can be rented as is with way less than 10k put in the repairs. Estimated rent in the area is 1,800. LTV is 193,000. Let me know if I answered your questions because I am still not sure what the best point of attack would be for those two deals. Thank you.

Ray A Delfi · Answer

@Albertinny Colin subject 2 for sure, what are the holding cost and how did you estimate your repairs? Is this your first wholesale deal? Do you have any cash on hand to provide them with the cash they need to quitclaim the deed over to you? If you are confident with the deal would you consider hard-money the cash they are looking for to close these deals and assign them to an investor? Lastly what is the current LTV (current market value not ARV)?