All Forum Posts by: Joseph Ambrose

Originally posted by @Ty Kirkpatrick:

@Joseph Ambrose this deal is "not the best".  It is not the worst either.  I am speaking from the lenders perspective.  The seller is carrying the mortgage for a buyer who intends to occupy the property?

I would have the buyer make all payments to a third party servicing company. This will allow your seller to have a perfect and documentable pay history. Based upon the credir history a FHA refinance will be the exit strategy for the seller on this one.

I would not do a three year deal. I would structure as a 12 month deal with (2) extensions. This will protect your seller further in case of default. I would have those extensions be contingent upon a mutually agreed upon set fee. Which is not applied to principal. This gives your buyer incentive to payoff the loan early. Remember FHA and alike loans are 85% of market value.

I would check into the buyers rental history.  That will further give you an indicator if he will pay on time.

Hope that helps

Hello Ty.....Sorry I didn't get back sooner! To answer your question, yes the buyer intends to purchase at the end of the term. Thanks for the advice.

Originally posted by @Tom S.:

@Joseph Ambrose  Quite a few questions, let me take a stab at it.

- I would start with the key question: how much will the house be worth after the renovation? 

- Where is the $100k in rehab funds coming from?  It sounds like the buyer doesn't have good credit at the moment, so not sure how he's going to finance that?

- I would stick with a simple 6% straight interest rate (simple interest, no amort) and then a balloon at the end of 3 years.  However, it really depends what the seller whats.

- I believe it's 4 years after a foreclosure that someone can get a mortgage again.  But as mentioned above, the house would have to be worth quite a bit in order to refinance the $85k purchase + $100k rehab.

- Still risky overall, what if the buyer loses his job in 3 years for some unknown reason, he won't be able to refinance at all.

Thanks Tom. House should be worth somewhere between 200-215k after repairs. Do you think bank will refinance with this ARV? The buyer is somewhat handy and may be making improvements to the home over the three years possibly reducing the 203k loan amount.

From what i've read it takes at least 3 years to qualify for a FHA.

You're absolutely right about the refinance in three y ears......the buyer may not qualify for mortgage. 

Hello everyone and I appreciate any help/advice upfront. I am trying to help very close friends of mine with a real estate transaction. Below is the following scenario:

The house: 1800's Greek revival made into a duplex. One side is able to be occupied at $825 per month, the other side is gutted. Total cost of restoration estimated at $100,000. Current value $80,000 to $90,000.

The buyer: A close family friend of the seller. 30 year old blue collar worker that suffered a health issue costing him his job and resulting in a foreclosure on his house. He owes $10,000 in credit card debt, student loans, and property taxes. He is reliably employed at $20 per hour. He will be actively restoring the house while living in one side (construction is in his wheelhouse).

The seller: Seller owns the house, there is no mortgage. Seller wants to engage in a owner financing agreement with the buyer. Seller plans to purchase a primary residence needing repairs, and will be applying for a 203k instead of using the funds from the sale of the duplex. As such, seller wishes to minimize the length of time he holds the note, which means maximizing the likelihood of the buyer being able to refinance with a bank.

Questions: Seller proposes to value the house at $85,000 and charge 5% interest for the first year, and incrementally increase the rate to incentivize the refinancing.

1) Is it likely that the buyer would be able to refinance within a three year period given his credit situation?

2) Will the principal be high enough for a bank to issue a mortgage at three years, or after?

3) Is 5% a good starting rate? Should he alternatively inflate the purchase price and lower the interest rate to keep the principal higher for a more attractive loan to the bank?

4) What terms should be in the owner financing?

5) Is this a good schedule? Should the rates increase more frequently and/or more aggressively?

Any news on this? I would like to know as well.

Warren, Are you renting to college students or unrelated people who are just looking for a room?

Wondering the same thing.....next time around can you put the house directly in LLC or does the property have to be transferred from your name?

Michael thanks for posting this question I was wondering this same thing as well. I think I may look into having an attorney drafting up my first application as well. Does that mean the name of the LLC is on the lease and do the tenants make payments to this entity directly?

Quit claim deed vs. warranty deed.....interesting I will look into that as well.

I was wondering if anyone that now has a LLC has any issues getting loans?

Wow what a difference since the start! Can not wait to see everything completed. Hopefully you can get that finished unit rented soon.

Definitely! I am looking to get into the college rental market as well. The benefit can be especially found in the SFH market where you can charge per room. I would definitely research the current rates in that area to make sure you are getting a competitive rate.

Definitely sell! Try the BP rental property calculator to see how the numbers break down in addition to analyzing all future investment properties.