Finance problem - Posted by Arthur Montano

Posted by SCook85 on June 05, 2000 at 08:30:33:

What are the comps in the area. Is the house worth more if it is fixed up or is it worth $135,000 after repairs.
Their are two attractive aspects to this deal and that is that it is “no money down” and owner financing. Outside of that I think that you would be paying to much for the home.

The only other recommendation that I would have for you is to charge more then 9.95% to your buyer. The least I get anymore is 11%, and I’m pushing 11.5% for A+ credit now. You may be better off taking the home off his hands when you have a buyer and then L/O the home. You will not have to put any money out of pocket, but you can get a down payment, and first months rent prior to making your first payment.

Will the home support the payments? In other words will people be willing to make $1500 per month payments on a homes such as this in the area?

Just some things for you to think about.

I hope all else is going well.

Happy Investing


Finance problem - Posted by Arthur Montano

Posted by Arthur Montano on June 04, 2000 at 21:38:06:

Hi all, Have an owner that wants me to buy his house (4/3/2/ 2100 sq.ft. built 1982) under Agreement for Deed (Land Contract). Have been trying to figure something out, but am brain dead. Facts :
1st mortguge 90,000 @ 7.5% 180mo & 2nd mortguge 45,000 @ 11.5% 180mo. Both payments equal to 1360.06 PI + 160 mo TI total $1520.25. House apprased 135,000. Needs new roof ($3000) and has 25’ inground pool. Owner wants 0 down and just cover payments of $1520.25. I’m thinking of wrapping this but can’t seem to see any other profit other than the 10% down (sell for 149900 - 10,000 dn. = 139000 @ 9.95% 360 = 1214.96 + 160= 1374.96 PITI) advised him I would buy for 135000 7.75% 360mo= $943.94 and that he would have to make up the differeance between the two $1520.25-$943.94+$160 =416.12. He ask me if I would split the 416 with him. I said I would think about it. House is located in excellent area.
Anyone have any ideas? Thanks, Art

Re: Finance problem - Posted by JPiper

Posted by JPiper on June 05, 2000 at 10:31:08:


It?s clear there?s no equity in the deal. But more than that, the underlying loans are both amortized over 15 years, thus creating a high payment.

What you did was offer him a 30 year deal?thus creating a spread between his payment and yours?.and then asked him to pay the difference?.kind of an optimistic thought for the next 30 years. He countered by wanting to split this. I suppose you could counter and ask him to pay the entire difference for 15 years, rather than half the difference for 30. One problem is, how will you secure this payment?

In essence, you could end up making this deal look OK on paper. But it all is going to hinge on the ability and willingness of an owner to subsidize a payment over 15 or 30 years. Further, on the other end, you will likely have a buyer with credit issues you are counting on for the other end of things?..and no equity to support the deal if it goes bad somewhere down the road.

I suppose that one needs to consider his own philosophy. Mine is that I don?t like to take a risk unless I have some equity there to support my risk. However, I can also see the other side?.the possibility of a long cash flow if everyone does what they?re supposed to do.

My idea would be to go back to the guy, resolve the issue concerning how much he will pay per month. I would probably agree to the $208.06 so that I could structure this in the following way. I would write the deal up showing the contract at the full payment. I would want a separate agreement signified by a note from him to you. I would try to get this secured in some fashion by something, or possibly guaranteed by a third party. Then I would assign everything to a new buyer?..without the note from the seller, having the seller release my liability. Tell him you’re only agreeing to the $208 if he will structure in this manner.

What this does is to put some cash in your pocket, and gives you a note from the seller for a period of years for $208.06 per month. Now you?re out of the deal. If the seller doesn?t pay, you still have your upfront cash from the new buyer. If the buyer doesn?t pay, you?re not grappling with a no equity situation with repairs. To me, this puts me in a situation of no risk, other than the possible risk that the owner will default somewhere down the road on his note.


Re: Finance problem - Posted by phil fernandez

Posted by phil fernandez on June 05, 2000 at 09:56:25:

Hi Art,

Question #1. Do you think in your market you can get the $150,000 with owner financing? Are you still in a hot seller’s market or is it starting to become more in balance.

There are some attractive aspects to this deal. Nothing down and no bank qualifying. The most important issue here is how motivated is your seller. He is willing to split the $416, but I like the deal alot better if he does one of two things.

1./ He takes care of the entire $416 or
2./ You split the difference with him and he comes up with say $5,000 cash for you. Remember the house needs a new roof anyway and your buyers are going to expect a good roof. I don’t think you should come out of pocket for this roof. And the balance of the seller contribution of $5,000 can offset the split.

If you offer your buyer the financing you suggest at a payment of $1,375 and pay the seller 7.75% on $135,000 30yrs at $1,103 you net cashflow from the deal would be $272/month.

So after the smoke settles you would get about $10,000 down and $272/month as cashflow. Not too bad assuming your sure you can market the house at the $150,000.

Let your seller make up the total difference. If he wouldn’t he might not be as motivated, but it does sound like you have some seller motivation.

Also as Steve Cook mentions, a lease option could work here. The buyer comes up with some cash option money for your upfront profit, bump up the sales price to account for future appreciation for your back end profit and try to create a monthly cash flow. Can you rent the house out for enough to create the positive cashflow? Again in this lease option scenerio I’d make the seller cover the total difference. Otherwise you will not have a big enough monthly spread.

Good luck. Interesting deal. Negotiate hard with your seller and remember there are other deals out there. Go in with that attitude and you’ll win one way or another. Again good luck Art.

Finance Problem? I think that’s… - Posted by soapymac

Posted by soapymac on June 05, 2000 at 08:42:40:

the wrong question, Art. I believe the question should be, “Where’s the profit?”

Now, I’ll prove to you how uneducated I am:

Total outstanding mortgage: $135,000 at a blended interest rate of 9.5%

Forget the swimming pool — it has nothing to do with the finances. It’s just a “doodad.”

He wants zero down and just cover payments? Looks like you are making his profit for him. Where is yours?



Roy MacLean

PS. I hope someone else posts to prove me wrong here, but this is a “no-win” situation.