All Forum Posts by: Michael Ramsay

One more thing to consider....

Pro Forma includes the equity as part of the invested money.  

1. You bought a 250k property with cash that's worth 250k. It has a NOI of 25,000 so you proforma and ROI are the same at 10%.

2. You bought a 250k property with cash but it's worth 500k. You have 250k equity in the house. The NOI is 25,000 so you proforma is now 5%, but your ROI is 10%.

The difference in the two is the equity that isn't being captured.   So in situation 2, your actual money is making 10%...but your potential money is only making 5%.  

@dennis - the value of anything is determined by how much someone is willing to pay.  Also this is a beneficial SELLERS solution.

@becca - thank you for a very good response!

@Matt - If the house is worth more than the appraised value to the buyer, this provides a way to make it happen.  

@Joseph - I have offered 5% interest amortized over 5 years.  

So my partner came up with a creative way around an appraisal issue and I'm wondering what you all think!  

- Buyers are prequalified based on debt/income for 300k debt.

- Buyer submits offer to buy house at 250k

- House appraisal comes in at 230k

Now this is where it gets interesting...

- Seller offers to owner finance the deficit in the appraisal of 20k.

- Seller does this by offering terms of a loan and is willing to take second position behind primary loan.  

Anyone done anything like this?  It holds people accountable to these high offers we are experiencing in todays market.  If they are willing to purchase the house for 250k,  this provides everyone a wayto be happy.  

Thoughts?  

How are the showings going?  Did you end up staging the property?

Just wanted to say thanks to all you who helped me think through this deal.  I ended up lining up a private money lender at 14% and 4 points.  I'll need that for a couple months and then refinance the property as a rental/investment property at around 4% for a 30 year fixed.  

This type of financing is expensive but makes it possible to obtain properties with low money out of pocket.  After a couple months of rehab a simple refinance and you have a long term mortgage.  The kicker for me was being able to do the refinance without having a tenant in place.  This way of obtaining run down properties has opened up the door of opportunity for me.

Hello Christopher and thank you for responding. I am 110% confident the HUD house will have between 100-130k equity after the renovations are complete. I'm exploring all avenues but simple sure sounds good to me!

The Ogunquit property has been lived in by the owner for 60 years.  It has never been an income property.    

No it's in Ogunquit.  I'm meeting the homeowner for the first time tomorrow so I will ask about owner financing.  Thanks for that direction I sure would be a lot easier.  

Another question I'll throw out there as this is my first off market purchase....and maybe someone can point me in the direction of a thread or blog that will answer my question:

What should I know that I don't know about buying a house from a wholesaler?  

Thank you everyone for your response.  This is great advice and helps me sort through options. 

Michael Webster it sure is nice to see someone else from Portland here at bigger pockets!  Out of those options you spelled out a co-signer, or an investor (my preferred option) willing to give me a one or two year term will work with this situation.  Would it make more sense to pursue that one or two year term going into this project instead of refinancing into it after the renovations?  

The current owner is an elderly single lady and I'm guessing she is going into a nursing home....not so coherent. There will be a chunk of equity in my current HUD property (which is in Portland) but not enough to cover this wholesale deal.

Hello Bigger Pockets!  My name in Mike Ramsay and I am a home renovator.  More about me later as this post is about a wholesale deal that I found and trying to find my end game with this property.  I'd like to hold this property for the next several decades and possibly move in (seasonally) down the road.  

Currently I am working a full time job at a Playhouse in Southern Maine, and renovating a HUD property that I bought with an FHA loan (which basically maxes out my DTI).

Now... I have lined up a hard money lender to finance the wholesale deal purchase price/renovation at 13% interest only and 4.5 points.   The loan term is six months with two 30 day extensions if needed.  So six months to fix and flip or refinance using another lender.  

I'm hoping you brighter minds of all things finance could help me figure out options for financing this property after the renovations are complete.  Selling would be easy....but I've love to keep this one as it's in a hot summer tourist town and will rent for a weekly premium!