Create note and discount or flip with discount??? - Posted by ScottE

Posted by Bud Branstetter on November 30, 1998 at 10:14:15:

I first want to comment on fix up costs. Here it costs $2500 to add CH/A. Windows cost in the $100/window range. Carpet installed in the $1/sqft range. Interior paint $1-1.25/sqft. So I think your repair estimates are low. What you don?t say is what the ARV would be. That is the key to knowing how easy it is to flip to another investor. He will want to make 10-15K profit.

As to the question of selling a note versus lease option. A lease option typically will get up to 5% up front. At the end of a year or whenever you can get them qualified you get your big payday. I am guessing that this house is on the low end of the market. As such you will have more problem finding a tenant/buyer with 2K or more. They will also be more difficult to qualify for a loan.

The owner financing sale will get you a little higher price but your immediate cash out is limited to about 80% +down of the appraised value.(As is or ARV). You talk about a wrap but with 6K acquisition or max 6k loan a wrap would probably be un-wraped with the sale. A second could be sold at a 1% premium and the same ITV ratio.You comment that you need the cash. Are you willing to give up larger profits for a quick fix? Most investors could but a 6K house on credit cards. A hard money lender would loan 65% of value. You could buy the place using a note but the financing would be in the 10-14% depending on your credit and the use of a broker. It would have a prepayment penalty. If you have good credit there is always the refi to cash out, L/O then exchange to protect profits.

Bottom line ARV and the market there would need to be know to suggest a best alternative. Your hunger for cash to acquire, fix up, or profit to live on is also needed information. At the figure you state you have a good deal. Optimizing the profit depends on these other items.

Create note and discount or flip with discount??? - Posted by ScottE

Posted by ScottE on November 29, 1998 at 15:27:50:

I have the opportunity to buy a small frame house in a good older neighborhood that is worth about $23k ‘as is’ for $6K. It could use about $2-4k in fix up, ranging from carpet and paint to new windows and CH/A.

My questions are these: Is it better to create a note and L/O or seller finance on a wrap then discount the note to sell to another paper investor
Sell it to another investor now for a discount?
(I need the cash)
What yields/discounts should I expect to see?

Thank you