Posted by Kristine-CA on August 07, 2002 at 10:22:40:
Neal: my experience has been that there are many buyers who don’t qualify for FHA or mortgages, even with 620 credit because of of self-employment income or income that is too variable and not easily documented. Also, some properties don’t qualify for FHA financing–I haven’t been able to find a lender yet who will lend under $40K without subprime terms.
Sincerely, Kristine
Having property of mine flipped… I think… - Posted by BrandonT(So.IL/St.Louis)
Posted by BrandonT(So.IL/St.Louis) on August 06, 2002 at 17:43:13:
Hello,
Am writing to ask opinions and advice on what to do with this situation…
Have a property I’ve been attempting to sell that has fallen through and pretty much set me back pretty badly as I made the mistake of planning around the closing proceeds.
Had a man come to me saying he ‘works with a group of investors’ and that he’d be willing to pay $65K for this property. I had agreed and then he brought a contract over, with a sales price of $75K, and a specified buyer who was not this original man, but one of his ‘investors’. He said he would have me sign a ‘consulting agreement’ with him in a few days but that at closing $65K would be my actual proceeds.
At first, I wasn’t too bothered by it, I assumed perhaps he is flipping it or doing something along those lines, but went ahead anyway. Then, after he got the information for the appraisal I already got for the first buyer, he called back and said properties in that area aren’t worth as much as they thought, so it would go down to 60K as the maximum offer, and I begrudgingly agreed since I’m in a somewhat desperate situation. Then he calls back and says since the appraisal was lower then what they were anticipating, that $58K is the most he can possibly pay.
I again, begrudgingly agreed… Now the new title company is working on the title work and I’m finding out in the alteration to the contract, it says I am closing with this supposed second investor (whom i have still never talked to or met) with a sale price of $71K (what the property appraised for) while what I’m verbally quoted to recieve as sales price is $58K.
I am just gritting my teeth thinking after I sign this ‘consultation agreement’ this guy who was involved for 2 weeks might walk away with more profit than I when I’ve acquired, worked on, sweated over, and toiled with this property for 7 months.
I am not quite sure why this second investor would just be happy to pay the appraised value without ever seeing the inside and am just not wanting to let go of so much profit so easily, but the situation is that investor A will be ready to close very soon, which I basically need in order to stay financially afloat. The thought occured to me of course that ‘if I talk to this second investor, I’ll simply tell him I’ll accept 65K just between the two of us’ but obviously thats dishonest and unethical, so not an option.
I appreciate you reading this and look forward to any advice.
BrandonT (Southern IL/St. Louis)
Re: Having property of mine flipped… I think… - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on August 07, 2002 at 13:10:47:
Brandon T–(MO)----------
Sorry you are having so much trouble. And here you are, such a nice guy, working so hard with this house and real estate investing.
I wonder if you could afford to step out of this contract? I understand you feel pressure to go through with it. And, if your contract is solid, I respect your decision to honor the contract. However, if you could afford to find a new buyer at the appraised value you will do much better financially.
If you can borrow some money or get another credit card to get you past the crisis, maybe sell an extra car, whatever, it would be good to get rid of this buyer, in my opinion.
I suggest that, if you feel you might be able to live without this buyer, that you take your “consulting agreement” to an attorney and get some advice as to whether you can pull out of the deal. IF so, do so.
Another possibility: if it looks like you can pull out of the deal, tell your “buyer” that the price just went back up to $63K. What are you doing? You are squeezing him, and getting some of that profit back for yourself. He might settle for that rather than a “no deal,” with which you are facing him. Better some profit than none.
Well, as everybody says, they want to do a first deal so they can learn. I’m sure you are learning a lot. Not only about real estate but also negotiating, and probably more important, about yourself. Maybe you will be able to move toward an investment strategy that makes use of your strengths and works well for you.
I congratulate you on your persistence. You are far past remodeled bowling alleys. You are showing the signs of a winner: persistence. You will soon be showing signs of a veteran real estate: emotional scars from painful experience.
Good InvestingRon Starr***
Re: Having property of mine flipped… I think… - Posted by Kristine-CA
Posted by Kristine-CA on August 07, 2002 at 24:02:18:
Brandon: I do flips and I’ve been approached by brokers and note people to create financing for buyers on my deals and it sounds very similar to what’s going on with your deal.
Given that the end buyer (Investor B) is paying full appraisal price, I suspect that your buyer (Investor A) has found a note investor to work with. This note buyer/broker will pay your Investor A 90% or better of the face value of the note plus the downpayment.
In the case you describe, I would guess that there is a maximum purchase price (appraisal price) of $71K, a downpayment of maybe $5K and first for $66K. The first will be sold at a discount at closing to create cash to buy you out ($66K at 90% is $59.4K). Your Investor Buyer A will get the downpayment plus the difference in the purchase price and the discounted first. It could be as high as 95%, especially if Investor B had ok credit and Investor A arranged for him to buy directly from you, the seller. I doubt Investor A works with investors, but probably with home buyers who need sellers to carry paper.
I don’t know if you have seen the “consulting agreement” but I am wondering if it won’t have language that indicates that you have to agree to sign papers that agree to create seller financing for the buyer that will be sold at closing in order to create cash to pay you your $58K.
I’m sharing this after an intense two weeks of researching this very topic for some of my buyers. There are many variations on flipping, and this is one of them. I’ve spoken with many note people and learned a ton, and will probably use such a process to fund some buyers for my flips, but I have to say I wouldn’t want to be on your end of it.
It sounds like you are contractually bound to sell to your buyer and don’t have that much time, but one suggestion I have if this deal falls through is: sell it for full price yourself, offering owner financing, essentially creating a mortgage for your buyer and selling it at closing to a note buyer. If your home buyer has credit better than 620, a downpayment and verifiable income, this could be the way to go for you. There are plenty of buyers for notes of this kind. Trust me on this one.
Let us know how it works out. I’m hoping that this one goes swiftly for you.
Sincerely, Kristine
Re: Having property of mine flipped… I am sure! - Posted by Buck_GA
Posted by Buck_GA on August 06, 2002 at 19:29:19:
Brandon,
It appears you have fallen prey to what might be an Inverse Purchase.
Inverse-Purchase might be a trademarked name, and I don’t wish to violate it. The actual deal you are working with may be under a different name but the plans are at least similar in nature. I have the ACTUAL figures and percentages in front of me from a note-buyer that teaches this technique and I will convert the calculations to fit your scenerio according to the prices you quoted as the original asking price and selling price for your property.
Here is what happens in detail:
Mr. Seller (you) has a house that appraises for $75,000. Mr. Consultant finds Mr. Buyer, a man that can’t qualify for FHA mortgage. Mr. Consultant negotiates to get the lowest price he can from Mr. Seller ($58,000). Then, negotiates to sell Mr Buyer the same property for the Appraised Retail Value for 5% down and a note for 95% of the purchase price at 8.75-9.5% interest for 30 years.
Here is what happens at closing:
A note broker/buyer has forwarded a check to the closing attorney. Mr Seller signs a note for owner-financing to Mr Buyer for 95% of the ARV ($71,250) at 8.75 - 9.5% interest rate for 30 years (terms negotiated between consultant and buyer these may be radically different.) Mr. Buyer gives Mr. Seller a down payment of $5% ($3,750) and the note buyer gives Mr Seller a payment of the difference up to his agreed price ($54,250) for a total to the seller of his agreed upon price ($58,000). Now, Seller gets paid, Buyer gets house, and Consultant gets nothing and the closing is over.
The note buyer/broker takes the total amount loaned ($71,200) and subtracts the amount paid to seller ($54,250) leaving $16,950. From that they deduct their normal note discount of %5 - %8 ($3,560 - $5,696) which is the note buyer/broker’s profit. The difference left over ($11,254 - $13,390) is paid to the consultant for handleing the deal.
The actual pay to Mr. Consultant could be different. The note b/b may charge more interest or require a fee for themselves which would reduce the payment to Mr.Buyer by as much as $3,000, possibly more, but unlikely. Most likely, it will only be $1000 -$1500.
One reason you may have not met Mr. Buyer is that he already looked at the property and could not qualify for financing. So he knows what you agreed to sell it for.
My friend, it appears that your property isn’t the only thing being flipped, you were too. I hope you aren’t paying a consulting fee to him.
I wonder, if at closing, you could see the owner finance note and agree to owner-finance for that price with a wrap mortgage. It would certainly wrench up the consultant’s plans…
just a thot
Good luck
Buck
Re: Having property of mine flipped… I think… - Posted by Terry (Houston)
Posted by Terry (Houston) on August 06, 2002 at 18:30:11:
"while what I’m verbally quoted to recieve as sales price is $58K. "
A verbal agreement is not worth the paper it is written on. When he is coming back with changes the contract is now being renegotiated. You are not committed until it is in writing. What is in writing in this “consulting” agreeement?
With that said, none of us are in your smelly shoes 
We cannot tell you if you should go through with this. Can you find someone who can buy it for more? If so go with that deal. Only you know your financial situation.
A “consulting” agreement? I bet the local board of realtors would like to see that document. Sounds to me like you have a couple of guys playing with you. Seams you might have some room to play back, if you can afford it.
Just as I see it…
Terry (Houston)
Re: Having property of mine flipped… I think… - Posted by Neal
Posted by Neal on August 07, 2002 at 10:04:25:
I’ve always wondered…
With a FICO of 620, wouldn’t it be better if the buyer got an 95% (maybe even 97%) FHA loan? It requires a smaller down payment and there’s no discount to cut into profits.
Neal