Help With Possible Wholesale Deal Please!

[Amy Gan]

Hi guys!

My partners and I have received a lead from our direct mail campaign and the seller wants to sell his former home. He moved out 14 months ago and it is currently vacant, he lives not too far in a new home. He purchased the subject property in 2006 for $487K and owes about $350k.

The market rent in that area is just under $2000/mo and I am not sure what his monthly mortgage payment is, but I am estimating around $2500 or so.

We are estimating repairs at around $75k and ARV of $425.

We are still pretty new investors and are wondering what some of the best options are we have to present him.

We are thinking subject to, but I am thinking that wholesaling to a flipper subject to may have challenges since his payoff is about $350k. Am I mistaken? Is there a feasible way to work this option out?

Also thinking subject to and finding a tenant, where the seller would have to pay the difference plus $200/mo. cash flow, as I read a thread on here about that (subject to, they pay you, I believe).

I think him accepting a cash offer is unlikely, being the most we can offer is probably about $250k and that wouldn't pay off his loan, but am I missing something with this?

Please share any solutions you have and/or correct me if you see "something off" above. Maybe I'm not understanding or am unaware of something. Thanks in advance for any help and best wishes to all of you! :-)

[Ray Lai]

Hey @Amy Gan

First off, congrats on getting started with you campaign and getting a response. Reviewing your numbers though, this is a deal that is highly unlikely to work. I admire that you are trying to seek creative strategies to make it work but the numbers just don't support it. Is he in distress? Because if he isn't, it's unlikely he'll sell at a number that works for you. It is absolutely Ok to give him an all-cash offer at what you can afford, and explain in detail a conservative (aka high) rehab cost necessary to take it to market value. It's unfortunate that he overpaid for it, making the deal tough.

Be nice and friendly and educate him on the ARV and the amount of rehab and follow up with him at a later date. If it can only rent for so low, at some point he might get sick of the money sink and sell it to you cheap at a later date. Or, if he wants to fix it up himself, it'd be great if you had a real estate friend to refer them to. Even better, get your own license and be able to convert both types of sellers - distressed and non-distressed who will use you as an agent.

Most responses to direct mail don't work out due to people being under water, not enough equity, people asking too much, etc. so don't get discouraged. It's good practice to learn how to educate the seller to get them to a realistic number or at least build a new relationship to ping on in case their situation changes.