Would You Do This Deal?How?
There is a seller with a property that needs a little rehabbing done to it, the current tenants are moving out. They said they would sell and the price is decent but they can't sell until april because there kid would not get her college sholarship because there income would be to high. Would it be alright to get a lease option on the property for a couple years, borrow the money to rehab,fix it and then sell it for retail after april and do a simuletanious close to cash her out. So the only money I have in it is the rehab money but since I don't own it is this safe? All suggestions are welcome. The roof also needs some work done before december or the insurance company won't renew the policy.
Based on the facts you supplied and if the property were in PA, here could be potential problems:
You make improvements to the property (rehab work including repair of roof) that would then be considered part of the property. Seller defaults in their contract with you because either (a) they change their mind about selling to you or about granting you a lease with option to buy; or (b) they can't get the existing tenant out to be able to give possession of the property to you. The work you'd be doing on the property between now and April is going to increase the value of the property (and bail the owner out of the problem of lapsed property insurance). You could unwittingly be making the owner motivated to sign with you, wait for you to finish the work and then default to either turn around and try to sell to someone else, or put another tenant in place. If they were going to default, I think it would be to try to sell the property for a higher price to an end user.
My concerns would be: what would prevent the owner from defaulting; how could I make sure I recover the value of the rehab time, effort & materials; what's my gut telling me about the owner.
Go ahead and get everything in escrow for closing. Signed deeds, the whole works. The closing will happen after april.
Get a performance mortgage in the amount of what you expect the repairs to be and record it. If they somehow stop the closing then you can foreclose on the property.
There are other measures that you can take but this should be enough to get your thoughts flowing. Then talk to an RE Attorney, the one who will be holding the escrow, and see what else that you can do to tie this thing down.
Quote:
On 2003-10-29 09:52, thomasgsweat wrote:
Go ahead and get everything in escrow for closing. Signed deeds, the whole works. The closing will happen after april.
Get a performance mortgage in the amount of what you expect the repairs to be and record it. If they somehow stop the closing then you can foreclose on the property.
There are other measures that you can take but this should be enough to get your thoughts flowing. Then talk to an RE Attorney, the one who will be holding the escrow, and see what else that you can do to tie this thing down.
Performance mortgage....? Is that a mechanics' lien? Just curious: how can there be a foreclosure if his lien presumably would be in second position?
Remember to file mechanic liens on the property and only remove them once you have been paid.