Seller Offers House; Should I Take It?
The seller just wants to deed me over the house, and I figure I can offer him $100 to tie up the deal and take over the loan sub2.
This loan is in the 300k range, and is a nice house with a pool, and just needs some cleanup. THE LOAN IS RIGHT ABOUT THE SAME AS THE TOP RECENT SALES IN THE AREA.
I would figure my exit strategy as follows, but need advice and input on this:
Since I'd have no money into it, other than the $100, I could market it at say $10,000 or less downpayment (great terms) and would make my money up front, even if I had to settle for a near break even price and cash flow.
But, this house is in somewhat of a high price range, and I still feel it could be a little risky, since I'd only be getting it AT MARKET instead of below market (even though appreciation is still going up rapidly).
I need thoughts and input from experienced people, please.
What is the mo payment and what is market? How much is appreaciation in your area? If appreciation is @ 5% or higher I would jump at it.
Give some figures and lets see.
Best to you
Sire
The payment is only $2200 per month for a $331,000 loan and seller says it is fixed, not ARM. Appreciation is between 12 to 17 per cent.
Also, please tell me how I can limit closing costs when I resell.[ Edited by Rambler on Date 08/19/2004 ]
If you can handle the risk of having to pay the note for several months, then it could be profitable. As they say, high prices mean higher risks and greater rewards.
Have the seller pay the next 2-3 months mortgage to give you time to clean it up and sell it. Even if he sold it FSBO tomorrow, he'd pay a couple months before closing. As for closing costs, use your own lawyer for closing and get the seller to pay for the title search, docs and transfer fees (and whatever else NV requires).
For your exit strategy, you can sweeten the deal for your buyer by using a CFD to provide them the mortgage tax deduction, so you aren't trying to rent it at $2500 on a L/O. Will the market support a sale price of $375-400K on a 2yr CFD, $2500/month with $10K down? That is only a 7-10% appreciation built into the price, so the buyer is getting a 'discount' and you get $30-60K in 2 yrs. A win-win for everybody.
Good luck, whatever you choose to do.
Peter
I'm sorry to interupt but what is a CFD :-?
I was wondering myself for quite a while, but it occurred to me that it probably stands for "Contract For Deed."
However, since I'm not certain myself, would someone please confirm?
CFD is contract for deed or land contract. All of these terms refer to the same thing in that the buyer and seller form an agreement in that the buyer makes payments to the seller to fulfil the entire purchase price. When the seller is paid in full, the seller signs a deed to the buyer.
Every property does have a range for a value. Buying the property at the high end of the market does put you in a risky position. However, in a highly appreciating market like Las Vegas, I wouldn't worry too much.
Here is what I would recommend:
Purchase sub2 the existing $331k mortgage with payments of $2200 at an estimated interest rate of 7%.
Sell the property on contract (CFD) at the highest you can--lets say $365,000 and ask for $10,000 down. Amortize the balance over 30 years at an interest rate greater than 7% with a balloon in 2-3 years.
If you sell for $365k with a 10k down payment, balance at 7% your payments would be $2362.
You would make $9900 minus closing costs up front, $162/mo, and approximatly $24,000 when your buyer refinances. In two years your total profit would be an estimated $37,788....not to shabby
GOOD LUCK
One of the things that Conti and Finkel mention is putting the price of the home at the two year mark with appreciation on a lease option. NOt what it is currently at..
Myfrogger, you say:
Sell the property on contract (CFD) at the highest you can--lets say $365,000 and ask for $10,000 down. Amortize the balance over 30 years at an interest rate greater than 7% with a balloon in 2-3 years.
Do you (or others) think I would be able to sell that much over the market quickly with $10k down in that price range, or would I have to make some payments for a while and wait?
Also, how much would I need to figure for closing costs both on the buy and sell ends?
[ Edited by Rambler on Date 08/22/2004 ][ Edited by Rambler on Date 08/22/2004 ]
The advantage of selling on CFD is that YOU are basically the bank for your buyer, at least for the term of the contract (2 years, etc.).
You can ask for this higher purchase price for a couple of reasons:
1. You can offer someone who has been turned down for conventional financing (about 60% of loan applicants!): they have the downpayment $10K and can make the payments, but for some credit reason, they can't get a loan. You step in and offer them this great house for a down/monthly they can afford and they're in.
It's been said that these type buyers are more interested in the downpayment and the monthly payment more than they are in the total purchase price.
2. Because it is a contract for deed, the buyer will not be purchasing at today's price, but at the price you anticipate it to be in 2 years (or whatever your CFD term is). Or you can pitch it as a "premium" for credit-challenged buyers. If they don't like it, they can always go apply for a loan...
Andy
When I was an investor during a previous time, I used to sell on wraparounds. Is a CFD better, and if so, why?
Also, I'm aware about selling on terms, but would I run into a problem in the $300k range, as opposed to lower priced houses.
Also, what is a quick way to determine (and limit) closing costs both on the buy and sell ends?
Update...I've just found a couple of higher sales comps in the area. The high comps are actually about $139,000, as opposed to the $131, 000 I'd be buying it for, but the low comps are about $265,000, for an average of right about $300,000.
WILL THE FACT THAT I'LL BE SELLING ON TERMS ENABLE ME TO REACH AT LEAST A SALE PRICE EQUIVALENT TO THE HIGH COMPS, and preferable more? And also, how can I quickly figure closing costs (and limiting them) when buying and when selling?
The reason to use a CFD is that you keep the deed until the buyer cashes you out.
With a wrap, you are a bank, giving them the deed and recording a lien against the house.
I like the idea of holding the deed. Write the CFD with a clause that says if they miss a payment or are late 3 times, it becomes a L/O and you can evict them instead of having to foreclose. Much easier.
Peter