Help needed on L/O to Subject To - Posted by Rich
Posted by Rich on July 09, 2001 at 15:36:07:
Hello Gang,
I’m looking for some advice / direction on my first L/O deal that was put together back in 1998. This was long before I had any idea what I was doing. You could say “I knew just enough to be dangerous”.
Structure of the deal:
L/O 3 bedroom 2 bath condo for $97,000,
Term: 3 years, Down payment: $0, Rent credit: $200/month,
Monthly cash flow: $75
The issue:
I had arranged with the seller a 30 day window before the first payment was due. I received close to 100 calls for people wanting to RENT, but not buy. My 30 days was down to 2 and no prospect of a tenent buyer. In my haste to do my first deal, I placed a well qualified TENENT. The tenent has been great, however, he has no interest in buying the place as I knew going into the deal. He did say he wanted to stay another year and will be relocating out of state at that time.
My option EXPIRES in a couple of months and the seller isn’t to excited about extending the option, especially at a cost of $200/month. At the end my option, the purchase price will be $89,800. The remaining loan balance on the sellers note is about $84,000. The place will appraise for 115K - 120K right now and values continue to rise. I don’t want to leave $25,000 - $30,000 sitting on the table.
My thoughts are as follows:
Take title subject to and continue to rent to my current tenent for another year. At that time, sell the condo for $120,000 on a wrap around land contract, $4000 down, create a 2.5 percent interest spread (current interest is 6.75%), and a balloon payment due in 3 years. This would provide $304/month cash flow and a $21,000 payday at the end of the 3 year term.
The seller stated he wants his remaining equity. He didn’t say when he wanted it though. I was thinking $1500 - $2000 at the time of the sell and the remainder from the down payment when I sell.
I appreciate any advice that you may have.
Richard