Is This A Good Candidate For Sub-To?
Hello All,
I am working on my first sub-to deal and I am working with a scout. He is asking for 3K finders fee. This is the situation:
The owners have tried to sell the house for the past six months but have been unable to do so. They have an appraisal report from last year that says the house is worth 143K but have been unable to sell it at the list price of 110K. In my opinion, a house is only worth what people are willing to pay for it, not what some apprasial says, but let's use ARV of 136K. So here are the numbers:
Loan Balance: $99K
Loan payment(PITI): $881
Possible Rent: $900
ARV: $136K (To be verified)
Repair Costs: $5K
Finders fee: $3K
For the experince investors out there, does this look like a good deal. I believe I will probably be negative cash flow, but I am hoping to ride out the pre-pay (2 yrs)and then refi at better rates.
The sellers are really motivated to move as they have a contract on their next home. I am thinking of taking the property sub-to their existing loan of 99K. What kind of costs should I be aware of?
The home was built in 1941 so I am planning to have a home inspection and an appraisal (about $550). Do I have to do a title search, title insurance, closing fees, transfer of deed etc.
I know that this is kind of an open -ended question but please feel free to drop any insight that you can.
Thanks in advance,
JS.
Let's look at the numbers.
"Loan Balance: $99K "
"Loan payment(PITI): $881"
"Possible Rent: $900"
"ARV: $136K (To be verified)"
"Repair Costs: $5K"
"Finders fee: $3K"
136-99 =37 -5=32-3=29.
29 - holding costs=?
Let's say after you sell it, you'll walk away with 29k - holding cost + realtor fees -unless you lease option it out; then you'll make more $.
Thanks,
OTW
Something to consider. As you said, a house is only worth what someone will pay for it. If they can't sell it at the list price of $110,000, pending another reason such as the agent's stupidity in marketing the house, I'd gather the house isn't worth $110,000, if nobody is willing to pay that.
As far as eating the negative cashflow for a couple years, my personal strategy is to walk away from negative cashflow. Also, I'll bet you a pretty penny you won't find a better rate in a couple years.
I agree to the true "ARV" question; I think you might want to have a realtor pull comps (sold only) in the area and try to get a better handle on what is happening in the market.
another idea i had was to offer the 'birddog' a finder's fee based on your selling price - set $3k at 136k; $2k at 130; and maybe even 4k at 140k. or something like this. I think you'll find that repairs can easily cost MUCH more that you initially expect - and the selling price can fluctuate greatly - let your bird dog share the wealth a little and maybe the extra reward (or limiting your fixed expense up front) can significantly improve your investment.