What to do with this deal?

Question

Yesterday I signed the paperwork on a 25 year lease with option to buy. The option amount is for balance owed on the sellers current mortgage loan at the time option is exercised. I'm making payments directly to the bank. Here are the details:
ARV, based on Zillow and Trulia, is $70,000
Loan is fixed 6%
There is $49,945 left on a $60,000 loan
I have three full months payment free (my first payment will be Sep. 1)
The monthly payments are $554.15 per month
The had the insurance replace the HVAC two days before we signed

Now for the challenges:
The husband is a contractor and deploys over seas often. A few months after they bought the home, she got spooked by a noise and left. That was in 2005. They have paid on a vacant home ever since. Because it has been vacant so long, it has had some squatters. The HVAC was also stolen. Here is a list of things that need repaired:
All of the cabinet doors and drawers have been taken. The frame is still in tact and in good condition.
One of the windows needs to be replaced
Carpet must be cleaned or changed
Possible copper stolen from underneath the home
A six foot portion of the chain link fence has been stolen
Painting, inside and out

With absolutely no experience in rehabbing, I'm guesse-timating $5500 in repairs.
So here is the crux of my problems:
1. I have absolutely no idea where I'm going to raise the money for repairs, but I'll figure it out.
2. Do I try to rehab and flip this house or do I rehab and hold long term? The house could rent out for $700 per month.

I'd really appreciate any insight y'all be willing to give. If I missed pertinent details, let me know so I can fill in the blanks.
Thanks!

Marty M. · Answer

I agree Bill. Calculated risk with CYA plan for worst case scenario. Thanks! :)

Bill Gulley · Answer

See, it might be the third dael, it might be the 13th deal it could be the 30th deal or the 300th deal, who knows.....if you do enough deals it will happen, so be prepaird to pay it off. :)

Marty M. · Answer

To be fair, I have 4 other homes with owner finance and have yet to have a problem with the banks. I'm sure there will come a time that I will have to refinance one of these homes because of the DOS, but so far it hasn't been a problem.

Marty M. · Answer

Thomas Beasley, probably my biggest worry is rehabbing it and then getting the loan called due. I can do everything except the window myself, so that ought to keep the costs low. I'm shooting for $2500 rehab costs. If I find that it's going to go above $5500, I'll walk. There's very little chance that the deal will be profitable past $5500 rehab.

Marty M. · Answer

Jim M. It does include taxes and insurance. Thanks.

Jim M. · Answer

I'm assuming the mortgage payment includes insurance and taxes. With that said if it rents for $800 a month you won't cash flow over the long term but you will be close to breaking even. Its not a great deal but it has some potential.

Marty M. · Answer

Peter Moser Great thoughts, man. I just found out that there has been no copper taken because the copper pipes were switched out to pvc pipes in 2000. The HVAC is brand new and cost me nothing. So that's a big load off of my mind. The majority of the outside is brick, so the painting will be minimal. Roof is good. Cabinets, replacing one door, a couple of fixtures, one window, lawn care and a thorough cleaning (to include carpet cleaning) may be all it needs. One bedroom needs repainting, but the paint is already there, in the carport storage. I took a lot of pictures today. If anyone is interested I will post them, otherwise I think elbow grease is going to be the largest investment.........unless something unexpected pops up.

Thomas B. · Answer

What makes it look like a shaky deal (I don’t want to say bad) is the additional variable of the bank calling the loan and adding expenses to the deal when it already seems thin. If the lender enforces the DOS, and calls loan for the violation what do you have. If you have rehabbed the house, and they let the bank foreclose, you're out all of your cost for repairs. That’s the part of this that would keep me up at night. If you are forced to buy the house to avoid it being foreclosed you have more expenses. How big is this house and are you going to be doing all the work yourself? $5500 sounds like it could be very low for a house that has been vacant for 7 - 8 years.

Peter M. · Answer

It seems like you have several issues to address in the contract area as well as repairs. Have you considered partnering with someone with experience? Depending on how bad the situation actually is you may break even or lose money but you would gain knowledge. You said you have no experience rehabbing so someone in the game a little longer might be able to make this deal work out. Good luck. On a side note I am in no way an expert when it comes to repairs either but at least in my part of the country if squatters have been in the house and stolen all the copper and HVAC, you are looking at well over 5k just to replace that let alone the rest of the damage done by those people. Good luck

Marty M. · Answer

Patrick L. I know that sometimes people ask for deal analysis and they're really just looking for validation that they made a good deal. They spend the entire thread defending their deal, instead of accepting that it's a terrible deal. So I really don't want to come across that way. I'm totally open to the idea that I put together a terrible deal here and I didn't see it. Having said that, I think the owners' concern about selling it revolves around their circumstances, not the equity. He is deployed all year and only comes home for 2 week spans every 4 - 6 months. They no longer live n Fayetteville, they now live 3 hours away. She doesn't feel she has the resources or knowledge to rehab a home she doesn't live in. He doesn't have the time. Neither of them want to sink anymore money into this home. They just bought a home they believe they're going to live in for the rest of their lives, so taking a hit on their credit doesn't bother them right now. Maybe it's short sighted, but I can see their point. Again, I certainly could have made a terrible call on this deal, I just don't see how yet.