Is this a good note deal??? - Posted by Kevin(OK)

Posted by Bud Branstetter on November 05, 1998 at 10:32:19:

Yes, it will work. Several things can cut into your profit. Closing costs, low appraisal, less strenght on your buyer’s credit or less cash down can complicate life.

Hopefully, your seller will subordinate to a new first. Look at the days on the market for solds of these higher priced houses to guage the number of buyers for these as compared to the average house.

Have you found out information like what is the first lien. Can you take it over and sell a 2nd to get her the cash she wants? What is she going to do with the money?

Is this a good note deal??? - Posted by Kevin(OK)

Posted by Kevin(OK) on November 04, 1998 at 23:33:17:

$166K FMV SFR, lady is motivated to sell, and will listen to all options. My offer is $124.5K cash + $21.5K owner carried second = $146K total price to buy.

My plan is to advertise this as “owner financed, bad credit OK”. I will have an open house, to get as many people to look at this house as possible. Here is the numbers: sell at $166K, create a 1st mort. for 82% of FMV = $136K, cash this out at 94%? of face value = $128K cash. Owner carries the $21.5K second. I will try and get a 5% down payment of $8.5K.

My profit on this deal will be $12K.

Will this work? Any pitfalls I need to look out for?

This house is about twice the value of the average houses ($90K) being bought and sold in this market (it comps at $166K though, nice neighborhood). Will I have trouble finding buyers?



White Elephant problem? - Posted by John Behle

Posted by John Behle on November 06, 1998 at 13:16:16:

You also may have a problem with the property and the appraisal. If it is twice the other properties in the area, it can be considered a “white elephant” and be severely devalued by the other properties. Comps even a few blocks away may not be totally relevent or may be adjusted substantially. The general approach with properties is to buy the worst property in a good area, yet I love white elephants if you know how to deal with them and price them. Your market can be severely restricted when you go to sell.

Get to know your local buyers - Posted by John Behle

Posted by John Behle on November 06, 1998 at 13:08:47:

Whether the deal could fly or not depends on your local note buyers or brokers. You are pushing the limits on an 82% LTV, bad credit and recent lower sales. Many have a firm policy of Appraisal or recent sales price (within 6-12 months) - whichever is less. A 6% discount is very un-likely in this case too.

In a scenario like you described, I would talk to B/C lenders in your area first. 82% LTV with bad credit can still be possible, but it might depend how bad.

I also, would not advertise “bad credit ok”. You can attract some credit bandits that can be major trouble later. Unless you had total release of liability on any financing or deal with the seller, you could get sued. Even if you did get a release, you could be setting the seller up and the courts could still hold you liable - no matter what the seller signed. I’ve seen it done.