what kind of contract would you do

Question

have a home seller has a mortgage of 65k and wants 10k to move out

wife died 6 yrs back wants to retire in galvaston tx he is willing to carry note for the mortagage just wants 10k to move on

found only 2 comps for same size house 1 was a short sale for 130k the other sold for 118 k

payments 2760 mo @ 7% interest

needs about 20k in repairs

owner started remodeling  but stop when wife died

has all the laminated flooring for downstairs included in deal

what kind of contract would I have to do

would like to flip it

Wayne Brooks · Answer

Easiest is a straight purchase for $75k.  "Owner will carry" but has existing $65k mortgage?  This would be a subject to, if not a straight purchase.

$2760/mo on $65k????

Steve Babiak · Answer

Even in an assumable loan, the lender may require that the "new" borrower (the party assuming the loan) qualify under the lender's underwriting criteria.

David Weiss · Answer

I'm not so sure I'd be so quick to dismiss this deal.

Here's how I would do the analysis if I were in your shoes.

I would ideally prefer to have more than two comps, but since most parts of Dallas/Fort Worth are experiencing a very strong seller's market, I would have more confidence in my ability to sell for a good price than in a more balanced market.  Therefore, if you aren't in a high-crime area, I wouldn't let the number of comps alone stop me.

Your first comp is a short sale, your second comp is significantly lower.  This is a little puzzling, but the low comp might be because the second house was significantly smaller or had fewer amenities or needed more repair or was purchased by an investor.

I pay more attention to price per square foot than total price when I'm forecasting my After Repair Value.  So I'd compare the $/ft for each comp.  If they're within a few dollars of one another, I'd multiply the lower $/ft times the square footage of my investment property and use that as my ARV.

If the two $/ft numbers are significantly different, I'd carefully compare the comps to the investment property.  Are they in the same subdivision?  Do they all have the same number of bedrooms, baths and garage spaces?  Do they have the same quality of counter-tops, kitchen appliances, flooring, bathrooms?  Do they have the same presence/absence of other amenities like decks, patios, fireplaces, pools, etc.?  Does either include things like new roofs, etc.?

If one comp seemed kind of not comparable to my investment property, I'd toss it and calculate my ARV by multiplying the remaining comp's $/ft times my investment property's square footage.

If both comps seemed equally legit, honestly in this case I'd just assume my low comp was a lowball offer given by an investor and accepted by a distressed seller, and I'd toss it and use the short sale's $/ft.

If my ARV came in at $136k or higher, I'd feel comfortable buying the house for $75k and putting $20k of rehab into it.  Your total investment would be 70% ARV or lower.

And if you've got access to cash to handle the rehab plus two closings and paying the loan, insurance and taxes for several months, I'd totally explore getting the loan assigned to me (preferably) or purchasing the property via Wrap or Sub2.  Why?

If you drop $95k into purchasing the house and sell for $136k, your ROI is 43% (before carrying/closing costs).

If you drop $10k as a down payment plus $20k rehab plus $5k in carrying costs, your ROI is 117% (before closing costs).

All real estate investments entail risk.  I don't believe forecasting your ARV using comps is extremely risky, I think it's the most sensible approach.  I don't believe the interest rate changes when the loan is assumed.  The bank might refuse to assign you the note because you don't meet their requirements; if that happens, you can acquire it via a Wrap Mortgage or a Sub2 as long as you don't need a hard money loan and understand Due On Sale risks.  Or you can just buy it outright, with your cash or via an HML.  A title company can run a title search to determine if the estate has been resolved and can guide you in how to clear the title if it has not.  Lastly, all rehab flips take time.  Time shouldn't be a red flag to any rehabber.  It is simply a risk to be managed.

Juan Bustos · Answer

@tom goans tks for the reply I hear trying to crunch # but just doesn't add up

is there any thing I can do with this house  other options

Tom Goans · Answer

@Juan Bustos,

The numbers still do not work even with the $760 consideration. Have you factored in the What Ifs? Do you have deep enough pockets to handle all of the What Ifs plus pay the monthly loan payments, the holding costs, and the $10,000 cash?

Basing your analysis on comparables is extremely risky, especially the examples you provided. They may not come close to being similar to what you are considering once you thoroughly investigate the property and the target market.

As for what type of contract, you should consult with a Texas attorney to make sure all the legal requirements are addressed and your interests are fully protected.

The current $65,000 lien holder may not want you to assume the loan, especially if the interest rate is less than current or predicted market rates. They are investors as well and must protect their investment goals.

Other than the numbers not working, the other red flag I noticed, has the estate been fully resolved? This is NOT a question to ask the seller.

Your time required may be another red flag.

Juan Bustos · Answer

also forgot to mention owner has an assumable loan can I use that to my advantage when I sell

Juan Bustos · Answer

sorry about that payments are 760 mo

what kind of contract would you do

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