Option Contract

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  • I have an opportunity with a house that I would like to solicit other people’s opinion.

    Homeowner inherited the house from her deceased mother and has tenants in it at present that she needs to evict at the end of the month for nonpayment of rent. She wants to get the house sold as quickly as possible. Initially her strike price was a little bit over 100,000 (the amount of the mortgage) but she has very little equity built up into the property (a shade over 20%). I went and met with her this weekend and negotiated a 30% discount which is more realistic for a retail price but still nothing great.

    My original plan was to host an HBS for down payment with this property and sell it subject to the original mortgage.

    However, while calling upon a potential Lonnie deal I discovered the mobile home sellers want to move into a SFR and their criteria fits the property mentioned above. The mobile home owners need to sell the mobile home for down payment on a FHA mortgage to the tune of 80 K. I’m now thinking the better strategy would be for me to get an option on the property at 55 to 70 K and then get paid to release it once the FHA approved loan comes through. As part of the exchange, I would have them sell me the mobile home for a nominal sum of one dollar (the mobile home is a 1972 model, pre-HUD 1974) Which I could then resell as a Lonnie deal.

    The homeowner just wants to get done with the property. She’s not really concerned about losing money on the sale and tells me that she can continue paying off the mortgage once she gets the payments a little bit more manageable through selling the house. While it’s not my problem, I don’t want to get her in trouble with her mortgage company and trigger the due on sale clause by putting option on the property and in facilitating the sale.

    This deal makes sense in my head but obviously there is a lot of moving parts I’m trying to make sure that I’m getting all the pieces in place before I go under contract with the homeowner.
    My plan:
    1) get a signed purchase contract from homeowner for XYZ price and subject to the the mobile home sellers receiving the FHA approved loan. Should I get this option recorded? I could easily see the mobile home sellers trying to go around me to speak with the homeowner directly once I show them the house.
    2) while I have not spoken to the mortgage broker, I assume they want and inspection of the property. Would it be better for me to pay for that in order to get more negotiating on price with the homeowner?
    3) should this get to the closing stage, it seems to be the easiest way to do this would be to do a double close. The mobile home sellers pay me and then I in turn pay the homeowner and take my cut from the difference in prices while also taking title to the mobile home.

    I’m going to go look at the mobile home today and talk face-to-face with the sellers about the MH and also there potential loan.

    If anyone sees any potential flaws in my thinking, please let me know.

    Jeff could you put some hard numbers on this some figures what’s the house worth now as is fair market value what is the mortgage balance what’s the mobile home worth for cash now

    SFR Mortgage balance: 104K
    SFR FMV: 60-65K (renovated homes are going for 2X in the neighborhood)
    MH FMV: 1K-1.5 K (they have an offer for 3K).
    MH sellers require 3% down for their loan 2 to $3000

    I’m not as concerned about the mobile home anymore since the part that I visited was really run down. If I can get a hold of it as part of a swap that would be fine but it is not worth a lot of money considering the location in the park. I spoke with her mortgage originator briefly and he immediately told me that what I was trying to do was illegal sense I was operating as a an agent without a license despite my telling him that there was no agent relationship between me and SFR seller. Anyway, the originator will want to do an inspection and appraisal so I have to be good with my numbers in terms of making sure there’s meat on the bone for me in this deal. Thanks, Jeff

    Sorry Jeff where does the mortgage originator come into play on any of this. If the home is only worth 60K as is and 102K still owed I would keep him far away from the home.

    Don,

    my apologies, I’m doing a poor job of explaining this. Basically, SFR owner approached me and is desperate to sell. She does not have much equity in the inherited property but is willing to give me a discount just so that she can get out of the landlord business. I do not like the area of town and so have no interest of keeping this in my portfolio. My thoughts were to try and conduct a HBS for highest down payment and sell subject to.

    I called on the MH as a potential Lonnie deal. They volunteered to me that they have been approved for FHA mortgage. What I was trying to see by calling their mortgage originator was how much of a hassle it would be to try and sell to them. Doesn’t look like it will work.

    The problem is that these MH people don’t have any sort of down payment they could provide to the homeowner in order to do a subject to sale. I could still do the HBS sale and take a marketing fee.

    That is what I would do is a HBS for down payment

    If your option contact is below the mortgage balance of $100,000 that means the seller will need to come to the table with CASH – which is very very unlikely… especially if your option is $75,000. The seller would need to bring $25,000 to closing plus closing costs.

    I don’t see this deal working.

    If the house needs repairs, you’ll have a hard time selling at close to market value even if you offer seller financing.

    Thanks, I’m trying to exhaust all the opportunities to help this lady. It looks like it can’t be done.

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