Any Suggestions on this Deal

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  • Found a owner who wants to sell, not urgent but is tired of management.

    Location: Fallbrook (San Diego County)

    Value at top of Market 575K?

    Current Value: 500K (maybe?)

    Loan 250K at 5.75% 1 Year left on ARM.

    1300 SF House
    1.57 Acres

    Surrounded by very large (3000 SF+) 900K+ plus homes

    Owners open to creative offers
    What options should I present?

    Lease Option for 1-2 Years?

    Get owner to re-fi first and carry zero or low interest second.

    I see potential in building a bigger house when the market recovers. It needs to cashflow until then.

    Play or Don’t Play



    Jack’s going to be out of town for a few weeks so he won’t be able to answer any questions. Let’s get some feedback from everyone in the forum.

    Here’s my take on your potential dea.

    In the San Diego market I would be a little concerned about trying to get anything to cash flow. From what I’ve heard, rents are cheap compared to the value of the property.

    Let’s look at the deal from the process of elimination.

    First and foremost, what does the seller want? What’s the least they would take for a cash offer?

    Will they take back 0% financing with 0 payments for their equity?

    What are the existing payments ( piti)?

    What would the house rent for?

    You don’t even want to do a deal based on future appreciation or future things that MIGHT happen. If they loan adjusts in 1 year, you don’t want to get stuck with a higher payment in a 2 year lease option.

    If the owner would refi to a low FIXED rate loan it could work unless they pull out all the equity and leave you with a $500,000 note. You don’t want that.

    If I were doing the deal in San Diego, I would probably just get an option ( RISK FREE STRATEGY) on the property for the lowest price I could possible negotiate then sell it using the Highest Bidder Sale method to attract buyers.

    Ideally, use a hybrid option where the strike price would be the loan balance with an agreement that anything you sell it for over that amount you would split with the seller. Or, if they will go for it, establish a minimum price they will get ( hopefully at <30% < below real market value) and anything you sell the house for over that amount is YOUR profit.

    You can’t just throw out offers until you know more about what the seller’s needs are and a lot more about the mortgage on the property now.
    It’s a people business. Get in to the sellers head and find out what’s REALLY going on then it’s easier to come up with solutions that will work for both of you.


    p.s. The seller will have a big capital gain tax to pay — make sure they know it and help solve that problem and it will be easier to get your offer accepted.


    I thought I sent a reply yesterday.

    See if the owner can refinance with a good thirty year fixed rate loan. Then buy subject too that financing. To get the deal to cash flow for a rental or a lease option some of the equity may need to be put on the side. One suggestion is an equity participation with the seller for future appreciation.

    If they can’t or will not refinance then look at the ARM. If it has a good ceiling on it figure your worst case payment and see if it will still work.

    Don Wede

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