How To - Sub 2 W/ A 2nd
House FMV 75,000 1st Bal- $51,000 - $519/mth 8.5% -
2nd HELOC Bal- $13,000 $200/mth
FMV rent - $750.
Seller job problems, doesn't want bad credit - has land would like to build on later.
Helping to judge motivation said I can probably take the 1st if he would keep the 2nd. He said OK.
Of course would require 2nd to be closed and proof from bank. Would you do this deal?
Or how else might you structure it??
Are you expecting to rent this rather then try to flip it to someone who wants to buy it?
How long would you expect the second to remain on the property? It can not just be moved (at least not easily). I am guessing the seller is going to continue to make payments.
Not a bad idea but you are at risk if he does not pay and the 2nd goes into default. If you are only renting and showing a positive cash flow you can just terminate the rental and then walk for no real costs to you.
John
[addsig]
If you do the deal you should be willing to do the deal. If something goes wrong down the road, I don't advocate just turning away and walking. You have already stated that the seller is having financial problems. How long do you honestly see them being able to pay for another place to live, and continue to make payments for a loan on a house that they no longer own. When things get tight and decisions need to be made to determine what gets paid, and what doesn't, I can guess which priority will not be at the top of the list. Even if they agree, the likelyhood of this working out this way isn't very high.
You could just purchase the property and sell it, or refinance it, and lower the monthly cash outlay. You could take the property sub2 and market it and sell it, take the 11k and walk. You could rent it, or sell it on a contract for deed. You could decide that this deal is not for you, and walk before you have committed to anything.
Bottom line. if it's worth doing, it's worth doing right. If not you should probably walk away.
Jeff
For exit I was thinking L/O to TBer; also was looking for what more experienced investors would do.
Wondered if it was too tight a deal or worth signing up.
Well its tight but it might be do-able. How about this: Take subject to with an agreement from the seller to pay you $100 per month for the next five years and you will make the payments on both the first and the 2nd. Rent for your $750 per month and you have about $100 per month positive cash flow. Not great but not bad for a first deal.
Even if the seller eventually doesn't pay you (which you have to figure on) appreciation will probably bail you out. My guess is that for at least a year or two the seller will pay cause he figures your making half of his payment on the Heloc which otherwise shows up on his credit report
Do the deal or don't do the deal-that's up to you. For me, it's a yawner. You should only do the deal with the mind-set that the second more than likely will end up as your financial burden.
Get a promissory note from the seller for the HELOC amount. He makes the payments to you and you handle it from there. Also, close the HELOC's line of credit as a condition for the purchase. Lastly, as added security get a lien on the land or any other real property they may own.
I've done this a number of times and only had one person keep their word and payments current.