Analyzing A Subject To Deal

[Carlos Monroy]

Hey BP, hope everyone is staying safe during these unprecedented times! 

I wanted to reach out to the network to see if I can get some help and advice while analyzing a potential subject to deal that my business partner and I are considering in San Antonio, TX. This will be our first subject to deal with a wrap so we are looking to ensure that we have the numbers correct before we engage an attorney to draft up our documents. 

Acquisition: 

ARV: $210,000

Mortgage Payment (PITI, including solar, and AC): $1,600

Existing Mortgage: $144,000 

Arrears: $24,000

Mechanics Lien: 3,500

Solar Lien: $3,500

Closing Costs: $3,500

Repairs: $10,000

My partner and I would come out of pocket $34,500 to bring him current on his payments then invest another $10,000 into touch up repairs. The house is in good condition and will only be needing small patch work along with new carpet and paint. All in initial investment we be $44,500. 

Disposition (Owner Finance): 

Sale Price: $210,000 

Down Payment (10%): $21,000

Mortgage: 30 year fully amortizing 8% fixed

Mortgage Payment (PITI, including solar, and AC): $221

Now at the end of the day our investment in the deal would be $23,500 and we would cash flow about $615 a month. Does this make sense with this structure?  

Some additional questions: 

1. Are there additional costs that may be missing from our projections?  

2. On a seller finance deal in Texas is it best to have an agent represent you in the sale of the property? If so, any investment friendly agents that you would recommend in San Antonio? 

3. From my research I understand that we can owner finance up to 5 deals a year without our RMLO license, is this correct? 

4. We will be engaging an attorney to guaranteed that we are protected if we move forward. Are there any other suggested methods of protection? 

Thanks everyone for taking the time to read through this! Happy hunting! 

[Joseph Cacciapaglia]

I'm assuming that you had a typo, and the buyer's payment is around $2,200 (based on your cash flow projection). That's a very large payment for a $220K home. It seems like this will be a difficult deal to sell, so you definitely need to include some holding costs. Owner finance deals don't sell themselves the way the used to, especially not at 8% interest. Maybe that will change, if financing gets tougher again. If you eventually need to employ an agent to get it sold, there goes another chunk of your equity. Also, your closing costs of $3,500 seem low, considering there are two transactions occurring.