Help on this wholesale / lease back deal

[DanielSun 7]

I came across a family who is losing their house, they make good income, but their mortgage is at default. Their story is they got scammed by the mortgage broker and is paying very high interest rate. So they want to sell their house to me, and let me do a rent to own back to them. I took a look at the house and the biggest problem with the house is the family living in there. It's so messy, and needs repair everywhere.

 

The only way they will contract the house to me is if I do a lease to own back to them.

so, the break down is approximately this:

 

House ARV: $430,000

Repair needed: $30,000

Contract price: $325,000.

 

And I agreed to lease it back to them for $365,000, term 2 years. I told them if they miss on payment or cannot repair credit by then, I won't sell it back to them. But in my mind I know most likely they will just screw up again, and they will not make the house better. I have no problem if they actually back out and move away peacefully, because then I can surely win on this. if they do buy it back then I wouldn't need to do any work on it.

 

Overall I think it's a doable deal, or at least there are ways to make it work. I don't want to assign this deal, I don't mind actually find someone who can fund this, or can partner up with me on this. I just don't know if the risk is worth it. Any comments?http://s1075.photobucket.com/user/zerggross/slideshow/32%20Bristol%20Ave

[Jonathan RexfordFL 8]

uh....RUN. No deal here at all. 1st and formost is that the owner of the current home has stated they cannot pay the mortgage. They will ONLY sell the house to you if you lease it back to them for two years. What happens in 2 years? You will be in front of a judge trying to explain this. How this family got scammed by a mortgage broker (even though they signed the note) and now you coming in wearing your cape to save the day. You buy the home. I am assuming a short sale since they owe more than it is worth. You buy the home as a short sale and the lender will ask you and the seller to sign an agreement that there are no side agreements. But you say....ah it is ok. Then you go through the deal.

 

You go down to the local loan shop and sign personally for this property that you are buying about 13% below value. Now keep in mind it needs work. So in essense from what I am reading you are paying retail.

 

You may get some cash flow from this deal. But 24 months come down the pike and you file eviction notice. They flip over there yellow page phone book and call there friend on the back page. They now file a counter suit claiming how you defrauded them and took advantage of there situation.

 

Eviction gets post pone. 18 months later you are sitting in a lawyers office and they are taking your deposition. In the mean time. You have been making the payments on your house to your lender.

 

You reach a settlement because your attorney has stated that it will go to circuit court and it will take another 6 months and advises you to give them 10K to settle or pay the attorney 10K to fight it.

 

You look at your bank account and then decide that it would be cheaper to pay them to leave. (Deciding point here). They move out and you find the repairs are now at 65K. Since you signed personally for this house it is something that you cannot walk on or BK the LLC of some sort. You are stuck.

 

My advice. Don't do it. Never lease back a home to someone. it is trouble.

 

Rant over and Hello Naked People.

[MichaelC 160]

My advice. Don't do it. Never lease back a home to someone. it is trouble.

 

Everything Rex said is right on, particularly the above. If a lender is unable to collect payments from these folks, what is the likelihood you'll be able to, Daniel? Years back I leased a home back to the homeowner and it was a problem from day one. I understand the potential is there, but the aggravation and stress aren't worth it.

Rexy, it's been a while. Good to see you around! Hope all is well up your way.

[DanielSun 7]

I don't understand, why am I paying retail? The house is $430,000 at least after repair, and in total it would cost $355,000 to get it fixed up and done.

 

I expect them not to pay, and I want them not to pay. That's why I made them understand if they do that they will lose the house right away. I will not wait for 2 years. If taking the tenant out of this situation, let's just say it's a house need repair, then I can absolutely assign this to some buyer in 1 or 2 days.

 

In Ontario there is no such thing as short sale. The bank always sell house at market value, because there are so much demand. This house was listed at $389,000 on MLS, and there were tons of calls about it. House here doesn't need to be 30% below market to get a wholesale buyer. There are people asking me to find 10% below market homes.

 

I want to find out exactly how much is their monthly payment right now, and exactly how much it will cost to repair the place, because I don't know, I feel something is there. I agree leasing it back to them is trouble. the way i see it, if it's really bad, nobody will fund it right? Then I would know it's a bad deal

[mweaver606 5]

The point people are trying to make is that eviction is not always as easy at it sounds. They can drag it out for years. I know of someone on another site that had squatters and 3 years later has still been unable to evict them. Somehow people that don't pay rent always have the money to pay an attorney to make things worse for you. Walking away is great advice, take it from people that have been through this before. There are deals out there, don't try to make everything into a deal just to get one done.

[DanielSun 7]

After careful consideration, I've decided that it is way too much trouble to get this done and the lease back is just too confusing as you guys say. I am waiting to see if they would consider move out then ask to sign another agreement.

[MichaelC 160]

I agree, Daniel. There are other deals with less baggage if these homeowners won't cooperate.

[Jonathan RexfordFL 8]

Here is what I was meaning paying retail.

ARV 430K

Repair $30K

balance $325K

Total invested $355K.

 

Sell for $430-355= 75K...profit? NOT AT ALL.

 

Cost of sale is going to be 12% at a minimum.

$378K net.

 

What about any potential legal issues?

 

So at best if everything goes right. You will walk away with 23K. You can work at the cost of sale. But lets say you cut that in half and you are able to bring another 24K to the table and cost of sale is 6%. Then that is your risk.

 

But I do not see a deal here. Remember retail is subjective. We have a magical cost that is called Cost of sale that buyers forget, but sellers realize.