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Furnished SFH in the Woodland Park, Colorado. It’s been a short term rental but the town outlawed them, and it may not cash flow as a MTR or STR so owners need other options.
Purchased in April 2022 for appx 575,000. Zillow now estimates it’s worth 533,000. Sellers are considering a realtor sale which will lose them about 32,000 in commissions, plus any carry costs, concessions, etc.
I’d like to put together a better deal for them. I am considering offering to buy subject to (at some price above what they would net on a realtor sale) and seller financing to an owner-occupant (since it wouldn’t likely be bought as a rental). I would use the final owner-occupant’s down payment (or part of it?) as my down payment to the seller, then make a spread on the interest rate. But with the value having gone down, I’m unsure exactly how to structure it so it will cover their payment and seeking input.
Payment is appx 2900/mo at 5.49%. Loan balance 431,000.
Not sure how much to tell the sellers they will lose in concessions, carry costs, etc, and unsure if I can collect a big enough down payment from the end buyer to get the sellers enough, and still make it worth it for me. What interest rate I could sell it at to the end buyer? Want a fair deal for everyone. Thanks in advance for any input!
Tim,
I don’t like any of this.
First problem: Seller paid too much for the property. Then paid to furnish it.
Second problem: Interest rate is 5.49%? Sell bought it in 2022 when interest rates were 3%. Why did he/she pay 5+%?
It’s OK to help someone out of the quicksand. It is NOT OK to take their place IN the quicksand.
Buying S2 and then selling via a wrap is a BAD idea. What if the seller’s lender calls the note due? What will you do then?
I would have this begin with the borrower getting a loan modification. If this happens, MAYBE then do a S2. If you do a S2, don’t seller wrapping a S2. Instead, do a lease with option out the back end. If you do this, I would NOT get a big consideration fee.
You’re welcome to call me.
Bill Cook
770-815-8727Bill thanks for the verbal spanking! I may follow up with a call but for those who may be interested in this question later, the Sellers bought right when rates started to rise. They definitely bought with STR income in mind, and then just recetnly legislation happened that is more extreme than what we’ve seen elsewhere (no grandfather clause). Great idea on the loan modification. I’ll look into that. I may follow up with a call as well. Thanks again for the input!
Tim,
I’m getting a fair number of people who hopped on the VRBO bandwagon within the past four years. They bought with only VRBO income in mind. Then the government stepped in making it more than a little difficult for investors. At the same time, everybody and their mother started buying short-term rentals, which meant rent rates began falling due to increased competition. Combine this with the fact that many folks who got into VRBOs for the “easy” money quickly learned running a hotel is anything but easy. Then came the fun step of the property not cash flowing. You can guess what comes next.
Bill Cook
770-815-8727Yes, that’s a more and more common story in my experience too. In your opinion, is there a way to help them AND do good business at the same time? Or are they sunk? I’ll let that question float out there for others who are interested, but we can talk it through on a call too, in case the only answer is “it depends.” Thanks again for engaging this discussion.
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