OfflineO.k. guys want your opinions (good/bad and ugly - lol) and/or any suggestions you may have. I've been mind-storming to develop several options to take on this deal.
Scenario: Lead off ad drew me a 'don't wanter' (non-listed). The seller owns this property free and clear and was their primary residence but also have two (2) other homes in the $150k-180k range (may have something on those two as well - to follow)
3/2
approx 1620 sq ft. heated/cooled (2970 under roof-1350 basement) per tax rcds
WAS approx 4200 sq ft under roof (with carport, front and back porch etc)
2 story
has an unfinished basement (un-usual for my region to have a basement) so a plus. With custom built cabinets that stretch approx. 16-18' of one wall. Walls with re-enforced concrete piers
approx 4 acres
cedar siding
underground power
buried gas tank
$7k paved asphalt driveway
hardword floors installed 2010
yr built 1997
negatives sighted
suffered damage in the tornado in April.
will need a new roof (dried in currently)
carport is gone (slab remains) (therefore the WAS sq ft' part mentioned above)
structure is in tact but leveled woods
My take to bring it back to full retail (rebuilding structures, carport, landscaping and touch-up cosmetics) approx $30-40k mark. (to be confirmed by bids/estimates)
the owner said before you couldn't see her home from the street, now looks like a pasture. They spent alot of money making this property to their liking and poured alot into the home and landscaping. She said she usually changed counter-tops, etc. abut every 2-4 yrs because she would grow tired of the same look. (lol) She indicated 'just wasn't the same without the trees'. They have moved into one of their rental properties and is debating purchasing land and rebuilding
I will have my contractor meet me there this week to go through it thoroughly to give estimates.
From my look yesterday the roof, rebuilding a carport/garage and landscaping is biggest ticket items. Will need some demo to remove downed trees etc (partially complete currently)
I spoke in length to the seller on Friday evening and established a very good relationship. After 5 times asking (worded differently) I got her to name a number. She kept say, just look at it and make me an offer. She finally said she knows she'll never get what she put into it in today's market but would like to just get what she can and start over. Said $70k but negotiable. She is open to creative options (owner financing) and mentioned negotiations based on take it "as-is" or reduced price if she could get some things from the home (remove gas logs she just had installed, etc).
Stats on home:
2010 Tax Appraisal - $216k ($28k land/$188k bldg)
Comps weren't clean - nothing sold in a while but put it in the $175-185k mark (conservatively).
if you were to do an buyers assistance program could easily get anywhere from $900-$1100 a mo. conservatively
A negative is it's out a bit. about 3 miles from Eclectic, about 5 miles from Lake Martin (and Trillum which is an exclusive gated community on Lake Martin ($500-$2M homes)
Huge positive: The whole area is rebuilding after the storm.
A couple options I'm considering:
just wholesaling and pulling a nice chunk and move on to the next
or
Provided structure IS solid and estimates are as indicated above:
having current (as-is appraisal), and inspections confirm cosmetic
Doing owner financing at anywhere of the $60-70k frame
pulling PM on rehab
so in it in the $90-100k mark
either leaving at exposure (higher cashflow)
or
(provided appraisal: initial + post-rehab appraisal is on) doing a re-fi and pulling out some of the equity (aka paying me first) but not stripping it
doing owner finance with tenant buyer at $150-175k mark
Refinancing at say $130-140k. paying of mortgage/PML out and pocket to Jen. Setting payments at the mid mark for my tenant buyer
ANY thoughts and ideas would be greatly appreciated. Meeting with owner finalize #'s and lock up in just a few.
blessings to all,
Jen
If you can do owner financing, go for it. Try to find out what they want per month. Divide that by your price to find out how many months you want to pay. (NO INTEREST!
) You can then give her the full $70K and IF she asks about interest (she may not) you can say its in the price; or offer her a couple thousand more (it won't extend the loan very long either way, and its much cheaper than paying interest to a bank or lender). MAKE SURE the monthly amount is well below the rents you could get. (Don't forget about taxes and insurance (any other monthly expenses) and factor that in). Set yourself up so you gain to get a good cashflow everymonth if you decided to take that route. BUT, have a backup cash price that is lower. Just to fall back on, have a 2nd and 3rd offer for her. (An all cash offer, and maybe a lease option offer)(Personally, I'd try for the owner financing or L/O)
Put your inspection clause in the contract and do the rest of your due diligence. This sounds like a goldmine! Then, clear up the trees, fix the roof and get a tenant in by taking a HELOC out of the property or try for a PML or HML to get the funds to fix it up. (Or, if you have a self directed IRA there's something you can do if you have another willing investor where as traditionally you wouldn't be able to use IRA money for something you own, there's a way around it). PM about it if interested.
)
Then
CAN'T beat that!! Its a win/win!
a. Rent it out for passive cashflow each month
b. Sell it for a lump sum up front.
c. DON'T refi the seller financing if you can help it, because getting something w/o any interest is GOLD! (IE, on a 30 year loan for 70K, you pay 73K EXTRA in interest at 5.5% over that 30 year period; 41K extra on a 20 year loan at 5%, 26K extra on a 15 year loan at 4.5%.) You get the picture. By having that owner financing, you have a 70K loan that costs you $0. If she wants $500/month, you have a $0 interest loan for 140 months (11 2/3 years).
AWESOME potential here!
Basement? You said that it has a basement and that's unusual for the area. What's the reason for that? Does the basement leak at all? If so, then there may be some foundation issues.
Do you have a potential tenant-buyer who may be interested in this?
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Thanks.
thank you Tammy.
Great points.
I ran at the full $70k allowing for interest amortized out to put a payment in the range of $450
Annual Taxes (no exemption) $548
with insurance and tax + debt servicing = $550 exposure.
Based on my tenant buyer's criteria and banked off current rental rates in range of $850-950 straight rental
owner financing or lease option can pull $900-1100 EASY
so a range of $300 to 650 cashflow DEPENDING on structure.
NOT inclusive of the PM that's what I have to take into account. currently have a PML on a low range of $30k but wants a 6 mo rollout. flexible on terms. SO my now exploring the best pullout method for funds.
STRATEGY/BACKUPS:
Wholesale
buy/fix/sell
buy/fix/hold
would live in (also looking for a personal property - lol)
I don't want to do a standard rental. I like to get in and out of a property (with retail sale or either LO or OF to tenant buyer) I am not banking on retail sale because not much movement with listings or solds. Most these people are lifers. Meaning bought and no intention on moving any time soon. lol
Like to structure to have my buyer paying expense, R&M, etc. My exposure restricted to debt servicing. I just want to be the bank not landlord.
I will run different variations of #'s to approach seller. After getting her idea of fair terms and conditions and let that set the tone.
Your right, will have cash offer also in worse case scenario. I will be able to pull HM if had to based on spread. I have multiple contingencies in my PA, so if estimates and repairs and (with approx 20% for overage/unforeseen) exceed desired profitability I have an out up contract expires.
Based on our conversation will more than likely have to include a plan for a balloon. say 5 yrs. verses the 30 yr amortization. Because her UN-excited part was having to wait so long to get her money. But was pleased to the thought process of the ROR. She could earn a higher return owner financing than she could in most traditional investments today. And still get what she was wanting out of the property.
THANKS Tammy. Great thoughts to think about!
LOVE YOU GUYS!
Do you have a potential tenant-buyer who may be interested in this?
un-usual because it's just not common but not absolute for Alabama (at least central alabama). From the road it appears one story, It could also be a drive in garage for enclosure if the space was not going to be made livable. (their intentions were a 'game room' for the space - aka a 'man cave' - lol) Of course your have to barrier proof it to service as a garage. But does have exterior (prob 8' doors) currently. Which was a though instead of rebuilding the attached structure on the front of the property that was destroyed.
It is currently unfinished so clearly visible. There was no evidence or water, mildew, or settlement. (post storm and vacant)
Yes, I have a tenant buyer list.
But seriously, try for the 0% owner financing and get a L/O in and wallaa! Forget the balloon payments and 30 year. That's your BEST bet and makes you the most money and provides the win/win.
Also, with owner financing, you can ask for no payments for a few months. 
L/O can be the handyman special. They fix the roof and clear the lot.
Really? I thought basements were standard where tornados are common.
but truly we aren't in a 'common area' for bad weather. other than 100 degree heat with about the same % of humidity! LOL we mostly get rain/wind from hurricanes off coast of FL. you'll see more of the storm shelters (the 'egg' things that are buried in the back yard) rather than basements.
APPRECIATE you Tammy.
Will post the AWESOME deal I'm about to create!
my reasoning for not structuring LO (and I may be wrong) but if I am sinking $30-40k (cap but possibly significantly less, will let my estimates determine) INTO a property I need the control to pull back funds out of the property to clear PML. AS in a LO I'd be basically renting with and option to purchase. Would I be able to pull a HELOC, pull a 2nd, refi if have to structure a balloon, etc.? Having deed recorded would give me option to live in, sublet, sell but title wouldn't transfer til option exercised. But would need to be on title to borrow against correct? (With title being held in escrow (clouding)).
I've only done one LO it was on a personal residence, that the tenant buyer did qualify and exercise their option to purchase. It was clean.
a balloon if you can help it.
Simply do a note for 70,000/the amount the seller want to have each month that fits comfortably with you and the cashflow. OR, ask the seller if they have any cash to do a 90K loan and $20K cash. Never hurts to ask and try to see what piques their interest. 
The L/O's downpayment can be fixing the roof and cleaning up the yard. And, if you want a second or HELOC, so long as the equity is there and your credit is ok, you should be able to pull some equity out. Try to find a portfolio lender to do the loan. It also depends on your credit and where you go for the 2nd/HELOC. Most will only go up to 70% LTV on an investment.
You could be on title, your company could be on title or you could put the property into a trust.
The seller would have a first position lien as a mortgagor.
But, try not to go for a balloon. Straight payments, no interest at a monthly amount comfortable to both of you. If they aren't comfortable with the number of years, then you can try to structure a second; either with the seller or with a PML or HML. In this deal, I'd stay away from HML if possible.
I would try Owner financing also. Ask her if she would do $700 a month for 100 months at 0% interest .She would get her $70,000 and you would have a home paid for in 8yrs and 4 months .Plus you rent it for %1100 a month send her $700 a month , great cash flow.
Hope this helps.
Good Luck and let us know how it goes.
Curtis Fillers
(Charlotte,NC)
sounds like you have an awesome deal in the works regardless of what route you take-even if you pay the owner some interest on the $70K if he carries-totally worth it!
Wishing you success,
Valerie
Valerie
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