First Try At A Sub 2 Deal
Ok, I've found a motivated, but not desperate, seller. He has a house that is vacant due to the fact that his tenant who was paying $2,000/mo has moved on. The tenant's company was paying (or at least helping with) the rent.
House appraised at $240k.
The house has been listed for 2 months at $229,900. He has been making his mortgage payments, he's not in arrears, but monthly costs are about $1400 so he doesn't want to continue that for very long!
Loan balance $160k about a year and a half into a 3-year ARM at 4.5% interest.
Seller says he has had a couple of offers but is trying to maximize his "net".
One offer of $228k would "net" only about $217k after subtracting the 5% commission so he is telling me he is planning on "de-listing" in a week or 2 so he can sell it himself. He wants $220k.
QUESTION #1 - The MLS listing says prot-period 180 days. How big a problem is this?
QUESTION #2 - Also, from what I've read, I'm thinking the exit strategy to use would be to Lease Option for 2 years. If I do this, what happens in a year and a half when the 3 years have gone by on the 3/1 ARM?
First of all, $220K on $240 FMV seems too skinny for me unless seller was willing to work terms on the equity and you could get in for very little up-front.
#1 - shouldn't be an issue if agent and seller agree and tear up contract.
#2 - L/O is a great exit strategy if it makes sense. Can you get 5% down in your market? That would be about $12K which is always nice for cash flow!
Question the seller on his motivation. Ask him about selling it himself, "how would that work?" It's not as easy as it sounds...I've been there! As for the ARM, if you get the deal sub2 you could always refi at a later date but you would be taking at least a minimal risk with the int rates. However, even after the ARM is up you should still only be paying like 5% then 5.5% etc. which should leave room for cash flow.
Another avenue here might be a sandwich lease option. If he's really concerned about making the monthly payments and you're sure you can get somebody in there you could offer him a 3-year lease - guaranteed payments and maintenance. Agree on a sales price to you at $230K, sell it on L/O for $245K and take the $12K and put it in your pocket. That would only give you $3K at closing but it may be enticing to the seller to get a higher price in the end.
Brian