Advice Please
I have the ability to purchase a house with renters paying 625.00 a month (which is about 200 to 250 too low for area). The house I had appraised and it came in at 129,500. I am buying it for 85K cash with the seller holding back a 25K note for 4 years, no Interest paid and no payments, just 1 baloon payment of 25K at the end of 4 years.
I have about 3K to put into the house if the tenants move due to rate increase. They have been there for more that 14 years renting.
I am paying cash 85K for the house then refinancing cash out of 95K so I get my 85K back and have closing costs paid which in turn will leave me roughly 2K out of the 95K to fix up the place.
My mortgage on the 95K cash out is already approved as a NOO 5.25% with a payment of $524.00 taxes and Ins are going to be roughly $200.00 (broken down per month) so I am now at $724 a month out of my pocket. I can do a lease option for $900.00 a month or if need be raise the rent to $850.00.
The house would easily sell in two or three years for well into the 140's.
So do any of you see this as a good deal?
Sounds like you've done some great negotiating as far as that owner note. If your goals are not to hold long-term them it might be a good deal to you. I hold long-term and I would not buy something for 85k that only brought in 850-900 a month, but again, if you are selling in a few years it makes sense, getting in for no money down or getting money back is always nice.
GL
The refinance completely blows the value of the seller finance (very soft terms for 4 years). Not sure why you are doing it.
I would much rather pay zero interest on 25 K then 5.25% on 25K. Other then getting your cash back out what is the purpose? Granted that is a big goal but...
If you want to go the refinance route see if the seller will discount the note if they receive cash soon after closing rather then waiting for 4 years. Without using a calculator to do the math, the 25K should be work significantly less. Remember the note will have to have inputed interest for tax purposes so the 25K is not all principle and will partially be paid in tax. So, cash rather then a note and no inputed interest to pay taxes on is clearly worth less then 25K.
I can do the math and suggest some things if you like. Send me a PM so I notice.
John
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21+ years of experience (many aspects of REI). Think out of the box. Use questions to find the real issues the seller wants solved. Brainstorm with others investors. Then write up the deal. [ Edited by active_re_investor on Date 09/16/2004 ]
Ray,
I am actually putting 85K cash out of my pocket but getting a mortgage on it for 95K after I close. I have a lender that will do up to 75% of the appraised value at 5.25% with no seasoning.
My mistake on one point.
Purchase price is 110,000. I was not adding up the numbers correctly.
As the original message says refinance, then the implication is that the purchase takes place and the 25K note is recorded in first position.
When it comes time to refinance the 25K note will be paid off and you will not receive all you cash back.
Two alternatives.
1. Structure the deal differently so that you buy with the 5.25% 95K as the first and then the 2nd is put in place. It would not be a refinance but a purchase. Not sure if your lender is as happy with that.
2. Otherwise you need to either have the ability to subordinate the 25K note that is in first position or have the note secured by some other piece of property so this one remains free and clear after you pay your 85K.
John
[addsig]
John,
I have the seller in second position as stated in our contract and they are fine with that. So my mistake in saying "refinance" I guess. The lender sees that the house is free and clear and I want to borrow 95K on it. Once that takes place then I will have the http://www.25K.recorded for the sellers 25K note.
So with all this cleared up, does this sound like a fairly good deal for a 2 to 3 year hold?