Posted by Sean on December 23, 2000 at 09:11:23:
I’m not forgetting that lenders buy on appraised value. I also don’t think the property is worth only $62,500 like a simple square footage calculation indicates. If the property truly is one of the smallest in the area then the other properties around it will bring its value up (the poster indicated that the other homes sell for $65,000 - $80,000). This is the “principle of progression.”
Second of all, even if the house does only appraise for $65,000 the purchase price proposed for the note ($51,500) represents 79.2% ITV.
Third, while $7,000+interest isn’t a killing and wouldn’t tempt me to do the deal (I require at least $10,000 profit), you seem to think this deal will be an incredible amount of work. Why? The hardest part will be convincing the seller to take 80% or less of her asking price as fair value. Once that’s done and a contract is signed it’s not hard to find a buyer for a house with owner financing.
If I were to do the deal I’d see if the Seller would take a $60,000 sale price with $4,500 down and use one of the many techniques to beat the due-on-sale clause and I’d sell on a wrap for $70,000 with $7,000 down.
The nice thing is if you choose your buyer carefully (600-639 FICO) and his credit issues are due to things bad things that happened several years ago, then in a year or two your buyer will have a FICO high enough to refinance. Considering that the Federal Reserve is expected to lower interest rates in the upcoming year, your buyer may quickly find a way to do so.
Plus you’ll be making a spread on the interest rates and you still preserve the option down the road of cashing the original seller out at a discount.