First option deal, need help.

[Skellies]

I was called to look at a double-wide 4/3 on ½ acre in a good area in Alabama. Meeting with sellers in a couple of days.

ARV is $109+k ($2k) cosmetic work.

Owes $54k

Owner is 5 months behind. ($850 payments x 5 plus fees/penalties approx $5k) Lender is a financing company that wants owner to do a deed-in-lieu. Foreclosure has not begun.

He needs to move, wants $2-3k to move and some equity.

I don’t have funds to bring things current.

I was thinking of optioning the property for 90 days at $70k and selling quick for $90k. After back payments and fees it would leave the seller about $9k.Probablly less considering I would get him to pay some of my buyers' closing costs.

Or maybe do a direct wholesale flip and assigning my contract.

Any thoughts?

[Rob in Atlanta]

There are several things you need to do before you make an offer like inspect the property to evaluate it's real worth and the required repair costs.  Also, you need to see the most recent mortgage statement/default notice and read it to see options.  Also, you need to examine the mortgage documents to see if the existing mortgage is favorable to take over.  IN addition, the current owners do not have 'equity' in this property....it is in default...there is no equity.  The most I would offer is to cure their defaulted mortgage with them signing over the deed and offer to rent them a moving truck from U Haul for a few hundred bucks!  That's it!

Then, if the property is worth pursuing, I would get a partner (that would be a debt partner, not an equity partner) to fund the clean up costs and the curing costs of the loan.  Find a credit impaired buyer with a good down payment and the ability to pay a monthly payment that is higher than the current mortgage costs for a cash flow for you to manage this property.

Anyone who pays their bills on time for 12 consecutive months can get a refinance by FHA.  The only hang up might be what an FHA appraisal would be in a year from now so you might need to plan for owner financing for a few years until the market rebounds.

There are many other factors that need considering regarding your paperwork, but if you find a mentor or a good real estate attorney, you can get assistance in that paperwork.

Hope this helps.

Rob in Atlanta
Investor/Mentor

[WendyPatton]

Assuming you have done your due diligence and the property is in fact worth $109k Why not just do a sandwich lease option. You could potentially make $20-30K and keep the homeowner from a foreclosure. If it is indeed worth $109k you should be able to sell it in a week to 2 at $90k

[Rob in Atlanta]

Another possibility is to resell this with owner financing, then sell 15 years of the 30 year note to a note buyer or bank that buys mortgages.  Then, if the new buyer defaults down the road, the note buyer will have to give you first right of refusal as you own the back end of the note.

I did this on some deals and one did come back years later.  The mortgage company who bought the front half of the note offered me the property back and their balance was roughly $20k.  I put an ad in to resell for $29k (which was a real steal) as a 'fixxer upper' and sold it in a few days for cash and walked away with $9,000!

When you sell this, it is a good option to sell it with owner financing, then sell only a portion of the note to a note buyer.  This gives you many options including the above and if there is no default, when the back end becomes current in 15 years, you can sell the back end at a very low yield to get the most for the note as it has 15 years of seasoning which makes it more valueable!

Hope this helps.

Rob
R.E. Investor/Mentor