What Do You Think?
My Dad and I are looking to get into REI. We made some phone calls this weekend and drove by a house. Here's the story.
Owners are in the middle of a Divorce.
Asking $249K , $108K left on existing mortgage - Not assumable.
House needs:
- Siding
- Front Door
- Kitchen and Bathroom
- Landscaping
I estimate about 20K in rehab. The smaller house two houses down sold for 279K in 2002. This model is selling for >$300K in this development.
Here's the plan:
1) Buy house for 235K
2) Ask seller to take 100K cash and the rest in a second mortgage..
-- they owe 105K on their mortgage.
-- we get 205K first mortgage.. they net 100K
-- they each take back a 15K second mortgage at 7%.. 10 years
(second and third mortgage @ 15K each = 30K assuming they want to split evenly)
3) We allow the wife to lease back the house for 1K/mo.. (bargain for her,
helps offset expenses for us)
4) We fix up house while she stays in it..
5) We get construction loan for say 35K
-- we use 20K to fix up house
-- we use 5K for closing costs
-- we use the remaining 10K to pay the difference between the 1K rent
and total payment.. (say 1500 - 2000 per month for 5 months..)
( this gives us 3,000 per month to cover first mort., second mort.
and construction loan & taxes.. if the numbers work)
6) We sell before the 10 months and pay everything off.. pocket the
difference
Benefit to seller..
They close deal now so they can get on with separation..
Wife doesn't have to move out right away
Wife gets good deal to stay on
Husband gets his money so he can move on with his life
Is this a pipe dream?
Pipe dream? I don't think so, but defenately not the type of deal I would do.
#1) You need to run a CMA and determine exactly how much the house should sell for and how long it will take to sell it. At a final sale price of 300k, this house is not worth doing. At a sale price of 350k, it probably is worth doing. As far as I can tell, you will have at least 270k wrapped up in this house, so I'm not sure where you plan to make $$$$.
#2) I would not be looking to lease back to the current tenant for less than half of fair market rent. Fixing up a house is far more difficult when it is occupied! Maybe I'm just not a considerate person, but I like to dictate my own schedule and not work around a tenant.
#3) I don't think you will get a construction loan as stated above. The banks I deal with will only loan a set amount for repairs and require a reimbursement schedule. You could attempt to take out a second on the house, but rates are usually pretty poor and they don't like lending over 80-90% LTV.
-Chris
[addsig]
Hey,
Getting people in a divorce to agree to anything is tough.
Overall I think this deal would be hard to get, as a first deal.