need advice on structuring SF deal - Posted by charles (delaware)

Posted by Redline on December 04, 1998 at 18:21:11:

He couldn’t get a hard-money first for more than 1-2 years?

need advice on structuring SF deal - Posted by charles (delaware)

Posted by charles (delaware) on December 04, 1998 at 15:19:03:

Opportunity to purchase rental home from associate/friend. He is open to my ideas. I am a real estate investor with good credit. Assume value is $100K. I will pay $90K. Friend/seller owes only $25K on private first mortgage. there are no tenants now but the house is a GREAT unit to turn around and lease/purchase, lease/option or owner/finance to entry level buyers. I have done one lease/option to tenants in same area with great success.

Seller may consider owner financing even as a 2nd loan as long as I can give hime some cash and a balloon in 2 to 3 years.

I have a good mortgage broker who can get entry level/ damaged credit people loans once they have established lease/purchase equity after one or two years.

I am thinking of private financing a first mortgage in order to clear seller’s 25K mortg ( if I can not assume ). Then getting 2nd mortgage seller financing with 3 year balloon and closing credits. Lease/ purchase to entry level tenants and assist them with conventional financing after 1 to 2 years.

Fire away. All comments appreciated.

Re: need advice on structuring SF deal - Posted by Bud Branstetter

Posted by Bud Branstetter on December 04, 1998 at 16:02:44:

It is more instructive to play with real cases. In real cases you find out what cash the seller needs. You find out if he will subordinate(or substitute) to a new first. Before you buy you try to find a buyer that you know what cash they have and what monthly payment they can afford.

You try not to put a new mortgage (for even 25+ ) on it. You try to get them a loan or sell a note to owner finance them. Every time you get a new mortgage it will cost you several thousand to get it closed. Or you raised the interest rate/payment to compensate. Two or three years is not much time to make owner financing willing to discount for earlier payoff. Concentrate at the beginning with your mortgage broker to find out what needs to be done to get them qualified. If you are getting in light and can make a 10K profit within a few months why wait.

There are too many parameters to structure every possibility. Many of the pieces you can massage to fit, others you can not. So why is your real estate investor friend willing to help you rather than do it for himself?

Re: need advice on structuring SF deal - Posted by Jimbob

Posted by Jimbob on December 04, 1998 at 15:50:56:


Sounds like you have a pretty good one on your hands however, if you dont handle it right you could end up having some headaches down the road.

If you get a hard money first and have the seller carry a second for the balance you could get in, the problem is your first will come due within 1-2 years, and your second will come due in 2-3 years, not very attractive.

You could buy it on an owner contract with a 3 year balloon and refinance it after 2.5 years with another lender and satisfy your friend but the chances are when you refinance, you’ll pay a higher interest rate, and the lender may only go up to 75-80% LTV, which means you would not be able to payoff the whole balloon when it comes due, again, not very attractive.

What you could do is take a 3 year lease/option on the property with very little if any money down, spruce the property up, put renters in there, and flip the property to another investor for a cash out sale, just make sure houses in that area are selling and for what price. By doing this method you could probably net around $10,000 profit if you’re lucky.

One of my favorite ways to do it and it’s only because I’m a glutten for punishment is to lease option the property for very little or no money down, go in with around $3,000-$5,000 and do some really nice fixing up, painting inside and out, changing out doors with colonial six panel styles, and basically updating everything thats fairly easy and cheap but looks good, plugs, switches, faucets, countertops, etc. Make it look white, bright and big. Do some creative landscaping, then put it on the market and sell the house.

By doing this it is work, and you’ll put a few thousand into it, but you’ll more than likely make around $15,000-$20,000 profit. Just make sure the area is in demand (houses are selling) and dont put too much money into it, know your market values, and get an attorney to do all the paperwork.

I have done it both ways and flipping lease options works, you dont have to do any work but the profits are smaller, then you’re back out on the street looking for another. Personally it takes hard work to find a good deal so I want to maximize all the profits I can get out of it even if I have to do some work. It also makes me feel good to see I’ve taken something average and made it into something people really want and can appreciate. When deals are hard to come by, make the most out of what you are able to get hold of, when deals are easy to come by, then they’re a dime a dozen and it might make better sense to just flip them one after the other without doing any work, but thats just my take on it.