What Would You Do?
What would you do in these types of situations?
Situation 1-you're dealing w/ motivated seller and you're buying subject to existing financing and then flipping it. How much do you offer this seller at closing and how would you prepare the statement for the seller to accept monthyly payments of your offering price?
1) FMV - $340,000
2) Mortg Balance - $140,000
3) Liens - $10,000
Situation 2- same situation but numbers are different:
1)FMV - $200,000
2)Mortg Balance - $180,000
3)Liens - $2,000
I prepared situation 1 to have lots of equity and situation 2 to have little because some investors treat would treat them differently. As in using a different pricing formula. Thank you.
I'll give this a whack:
Number 2 is easier, so I'll start with that one.
If sold by realtor, Mr. Seller, here's what you'd PAY to get rid of your house:
Perceived equity: $18K
Less 6% commis: $12K
Less 3% closing: $6K
Less 5% negotiated price: $10K
Less cleanup cost: $5K
Less holding costs (4 months): ~$4K
TOTAL: minus $19K!
Offer: $10, plus any moving money you'd like to give him to help him out
Number 1 is different because of equity:
Perceived equity: $190K
Less 6% commis: $20.4K
Less 3% closing: $10.2K
Less 5% negotiated price: $17K
Less cleanup cost: $5K
Less holding costs (4 months): ~$4K
TOTAL: $151,400
Offer A) Have seller refinance the house to cash out whatever he needs for equity. You give $10 and take over payments on the new mortgage.
If seller does 100% refi, make sure you can get FMV or higher (maybe by selling on CFD to a credit-challenged buyer for FMV+2 yrs appreciation).
Offer B) $5K now, balance when resold (with or without interest).
Offer C) Don't take sub2, take an option to purchase for a discount ($3 - 5K option price), sell at FMV, double close, collect difference.
These equity offers really depend on the needs of your seller: do they need the cash now, in small amounts over time or can they wait?
Andy