1st Ad, 1st Call, 1st Offer

[MichaelC 160]

Well he is still working on getting his equity line, and it appears he maybe able to qualify to borrow a little more than what I am going L/O the house for. I mentioned that this could be a problem when the tenant buyer is ready to purchase. The seller stated that he just wants access to the equity and if he should go over my l/o price, he would come out of pocket for the difference should the t/b close. That is fine I suppose; however, I will need to check the "Liens" paragraph in the contract and see if I am covered. If not, I will need to add some verbiage regarding this issue.

I'd be careful and stay on top of this, Steve. Your best protection in this case would be a Performance Mortgage in conjunction with the Lease with Option to Purchase Agreement. The mortgage will tie up the homeowner to "performing" up to his end of the Agreement and the terms it specifies. So, if he gave you an option to purchase the property for $240K, he needs to adhere to that. At the time of closing, if he owes, say, $247K, then he will, in fact, have to come out of pocket to make up that difference.

Before the seller signs the L/O agreement, he wants to make sure his equity loan is rolling. Seems he needs his house to qualify as his primary residence, and he feels that if it's leased, it will be looked at as an investment property.

Possibly. But who would know, unless he tells the mortgage folks? And you could always hold off recording any documents until his loan is finalized. I'd just rather see the deal done. Things can happen in the interim.

He did mention that if I a ran across a t/b in the mean time, he would go ahead and sign the paper work.

Then it makes no sense why he wouldn't sign the papers now? In the meantime, have you been marketing the property?

[<Steve> 82]

Hey Michael-

 

Thank you for the reply. I will be contacting the seller again tomorrow.

 

After looking at the Performance Mortgage, this is a very powerful document to secure our agreement. I will use it.

 

Currently, I am not marketing the property. I was waiting until we signed our L/O agreement. Should I be marketing this property?

 

In the mean time, my ad brought in a couple more calls this week. I just made another Short Offer on a smaller 5 year new house. The seller bought the house from their daughter who was having problems making the mortgage payment and is now reselling. Their price and rent are to skinny for a sandwich. But because they bought the house recently, I was able to find out what they paid via MLS, and made an offer that can work for me in this market area.

 

I'm hoping that if I can make 5 offers on 5 different properties, I can get at least 1 deal made.

 

Thx <S>

[MichaelC 160]

Currently, I am not marketing the property. I was waiting until we signed our L/O agreement. Should I be marketing this property?

Probably not since you don't have a signed agreement. I was curious, though, how you might be handling it.

In the mean time, my ad brought in a couple more calls this week. I just made another Short Offer on a smaller 5 year new house.  The seller bought the house from their daughter who was having problems making the mortgage payment and is now reselling. Their price and rent are to skinny for a sandwich. But because they bought the house recently, I was able to find out what they paid via MLS, and made an offer that can work for me in this market area.

That's great that the response to your ad has been consistent and steady. But, even better, is that you're getting offers out in rapidfire fashion after speaking with the homeowner. I consider one of the common pitfalls with newer folks in this business is the reluctance, or fear, of making an offer. But if you can put an offer out there quickly after speaking with the seller and make a homeowner look at something tangible, something real and in their hands, you're going to force them to think. They just may say yes, and now you've got a deal. And if they say no, better to find out sooner rather than later. Put 'em behind you and move on.

This offer is another CA, I assume, Steve?

I'm hoping that if I can make 5 offers on 5 different properties, I can get at least 1 deal made.

The over/under in Vegas is two.

[<Steve> 82]

Here is the latest on this deal.

 

The seller has moved forward with his equity line. His first lien and now his second (equity) lien total $241K. I am L/O for 240K, so the numbers are about even. He is ready to sign. I faxed him the final L/O contract and Performance mortgage (my lien ) last night, and as soon as the paper work is completed, I'll be rolling to market for that tenant/buyer!

 

<S>

[MichaelC 160]

Sounds like a go, Steve. He'll be a wash at the close, so he should be fine with the deal overall. He has his cash in hand, and you get control of the property for nothing down, and for three years. Sweet! Keep us posted.

[<Steve> 82]

Thinking this was about wrapped up, the seller told me today that there is a prepayment penalty on his existing financing. Damn and I was ready to close this deal!

 

The seller mentioned if his loan was paid off between now and October he would have to pay a 3% penalty. No problem our L/O begins the month before in September and the property will not be sold. After October and within that year the prepay penalty drops to 2% and lower the third year. I think he may be jerking me here as he mentioned he is still in his first year on his mortgage, and I know he bought this property two years ago.

 

Here are the original numbers again:

My price:

240K

Rent $1,400

3 year term w/12 month extension

 

T/B Price:

260K

Rent $1,500

50% rent credit, 1 year term =9K

5K to 8K consideration

 

Profit:

Front End $5k to $8K

Monthly $100

Back End $3K to 6K

 

Now if I add 2% to "My price" I'm out $4,800 profit. To skinny for me. But I have put some work into this deal and I don't want to be the one to kick it to the curb. I would like to negotiate something for example: A higher price for a lower rent.

 

The seller's current mortgage is $216K and he just took out an equity line of $25K.

 

I think what has happen, and I did not mention this earlier, is that the property is listed with a Realtor friend. :ph34r: And if this Realtor thinks they are going to loose this listing, I'm sure that the realtor will say anything to keep the listing. Hell, the realtor might even try to sell the property. WOW thats a new idea! The realtor did say he would let the listing go however.

 

But anyway, I guess that I may have to sit on this one and let the seller make a monthly payment or two and dream of using his equity line for his new house down payment. And when his motivation is back he will be calling. And I think he will.

 

Anyway, the phone is still ringing every week from my paper ad.

 

<Steve>

[MichaelC 160]

So, there's a fly in the ointment, eh Steve? Not the first time it happened. Won't be the last. A few things you can do.

You already mentioned a lower monthly payment in exchange for a higher purchase price. That's one.

With this possible prepayment penalty hovering about and making the deal too thin for comfort, what about skipping the sandwich lease idea altogether and just taking control of the property and then assigning it to someone? A contract locking in today's value for three years, (with an option for a fourth year), is a fairly valuable piece of paper. You may very well receive several thousand dollars as an assignment fee if you can market to a family looking to get into that neighborhood today, but unable to qualify for a while. Just a thought.....

Or, as you also noted, maybe allowing some time to pass, and a few mortgage payments to be made, may cause an attiitude adjustment with the homeowner. Problem with that is you may also lose the deal to someone else. Toss around all the possibilities, Steve. You'll make the right decision.

Then, answer those other calls. Good deals wait for none of us....