Unusual, But Very Profitable Deal-Need Advice - Posted by DGF(NJ)

Posted by Bill Gatten on January 08, 2001 at 20:57:21:

Hi Anna,

Good call, but this may not be a PACTrust deal.

The buyer on this one can indeed take control now and worry about the refi later on; however, the main issue on this one seems to be getting the seller all of his cash out now, and there doesn’t appear to be enough equity to so at hard money rates. The other option, of course, is to have the seller re-fi to as high an LTV as possible, put the cash in his pocket, and then put the property into the PT with the buyer. A Power of Attorney would then be taken from the seller to allow the buyer to direct the trustee in dealing with all matters of the property and its title: with the exception of matters pertinent to his own eviction and/or dissolution of the trust for cause.

Later on, when it was most comfortable, all steps toward sub-division could take place without a lot of input from, or involvement by, the seller. The resident beneficiary would merely need to be apprised of the plans for the future and be willing to enter the deal aware that such sub-division would eventually be taking place.

As an enticement, perhaps th buyer could offer a little hiher price in order to get better terms (assuming a long-term hold the appreciation due to the sub-division would pay that higher price nicely with nothing out of the buyer’s pocket.

Bill Gatten

Unusual, But Very Profitable Deal-Need Advice - Posted by DGF(NJ)

Posted by DGF(NJ) on January 08, 2001 at 01:22:46:

This deal is a little different than most discussed on this site, and I need as much advice/help as I can get. There’s a realistic profit of approximately $170,000, so I MUST find some way to make this happen.

I want to purchase a beautiful, large, older single family home that I’ve had my eye on for years. Not only can I build some equity into it by making improvements (cosmetic), but it has a large, sub-dividable lot. I can sub-divide after
purchase, creating 2 new lots which are worth approximately $65,000 each. Lots are valuable in this town (in NJ), and these are two of the very few that are left.

Even though the appraisal says the value of the property is $230,000, the seller wants
some additional money for the value of the land. He has agreed to sell it to me for
$255,000. Immediately after purchase, I plan to go ahead and subdivide the lot. I also
immediately rent the house and start working to bring it up to date. I have
a carpenter friend who is ready right now to work with me exclusively.

The problem with this deal is that the majority of the profit comes only AFTER I take title and sub-divide. A hard money loan at 65% of “as is” value only amounts to $145,000. When I first talked to the realtor about making an offer, she seemed to believe the seller would be able to take back a substantial second mortgage, and so I had hoped to do a hard money/seller carry back deal. Now though, the realtor has told me the seller has decided he needs most of the $255,000 (at least $220,000) at closing to pay off existing mortgages and to put a down payment on a new house.

Appraised value: $230,000

Sale price: $255,000

After repair value: $290,000

Value of 2 lots: $130,000

I think what I may need is a partnership with someone who can make up the difference between the amount of a hard money loan, and what the seller needs at closing. The partner can receive a very nice return on their money in a short amount of time, with low risk, and I’d still make a large profit.

So how do you guys think I might make this deal happen? I’m interested in any ideas you may have. It’s definitely an unusual deal, but the profit is fantastic.

Re: Unusual, But Very Profitable Deal-Need Advice - Posted by dewCO

Posted by dewCO on January 08, 2001 at 14:36:37:

So the appraised value does not include the extra land that can be subdivided??? How did that happen. IF it’s part of the parcel it should be.

And you’ve checked and know how much it will cost you to subdivide this land and you know that it is subdividable with the zoning and water hook ups, etc.

You don’t say how much you expect to net on this but almost always IF you have your ducks in a row and there really is profit to be made, you should be able to find a partner to put up the $$$. Hope you aren’t just relying on the real estate agent for this so called “aappraisal” info.—they’ve been known to be wrong and/or over state, etc.

PACTrust? - Posted by AnnaSalk

Posted by AnnaSalk on January 08, 2001 at 02:46:11:

I am not sure if I am correct but did you consider a resident beneficiary in a PACTrust arrengement instead of looking for an investor and lose your time and effort on the closing process? Realtor would get her commission, everyone would win. The seller would need to agree to stay on the loan longer but not without benefits. This would give you time to do the subdivision. You would need to ask Bill Gatten at which point the property would need to be taken out of the trust and put back in again… You would not “give away” any more profits than with an investor… In fact the trust could turn the situation into an easier deal, more doable?