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Taxes and insurance equal $2210.64 a year total. This a no money down, subject to carry back so I pay her mortgage of $700 a month and after the first 6 months, she wants an installment of $9,000 at that point and will extend the $700 a month for up to 5 years after that. She is ok with carrying the loan as long as she gets her spread of $9,000 in the first 6 months.
I am exploring doing a Highest Bidder Sale for this property instead of putting any money into it and keeping it. It cash flows nicely now if I rent it out but I won’t have the $9,000 built up in 6 months from this property, plus there will be a balloon in 5 years which won’t come from the rental income alone in that short amount of time. I don’t want to take out a hard money loan if I don’t need to. Still exploring ideas……Sell now or try and come up with money later to pay it off or refinance in 5 years.
Thanks Don and Mike. The owner is carrying $180k at $700 a month and the property is worth around $270k ARV. It could use approximately $15k worth of repairs but it is move in ready now for renters (and had renters who just moved out) so I’m going to get it rented asap. The area and the size of the house rents at between $1200 and $1600 a month so it will cash flow right away.
Do either of you have any tips for finding private individuals who lend to real estate projects like this where they would be in 2nd position to the seller financing and pitching a request to borrow those funds? Should I borrow enough to do the repairs and also pay off the seller altogether and then the lender would be in first position?
So will this apply to my own long term hold? I just acquired a property that I am keeping as a rental and I need to do some light rehab work on it. Would I find an investor who will create a HELOC off of their existing home and lend me the money at a higher rate than what they are paying on their HELOC? If the deal goes sideways, I am still on the hook no matter what so what is the benefit of not doing a HELOC on my own home for my own rental property?
Thank you Jackie and Dee, I will suggest she speak with her attorney there and find out about the essay contest idea.
Here is a draft I am starting with for our Option Agreement. Does anyone have any suggestions/edits?
Real Estate Option Contract
The Seller and the Buyer (named below) hereby enter into this Option Contract for Sale and Purchase of real estate for property located at: ______________________. The Seller, in consideration of the Buyer paying $100.00 (the “Option Deposit”), gives to the Buyer the exclusive option (the “Option”) to purchase the property described herein (the “Property”). At the time the Buyer exercises this Option, the Option Deposit shall be applied towards the purchase price of the Property. The Option Deposit is otherwise non-refundable.
a) Parties: (Seller), and and/or Assigns (Buyer), with reference to the property herein described as _____________________ (the “property”).
b) Seller grants Buyer an Option to purchase the property including any household furnishings, personal belongings, fixtures, etc. still in or on the property at the date of this signing, for a total price of $000,000.00. The duration of this Option shall be for a minimum of six (6) months and may be extended for six (6) month intervals, not to exceed five (5) years (the “Duration Period”). Exercise of this Option shall be provided from Buyer to Seller either verbally or in writing.
c) Buyer agrees to pay Seller a monthly amount equal to Seller’s mortgage until closing. All monies paid will be credits, reducing the purchase price by the total amount paid up until the closing date. Buyer and Seller agree to use a third party impound account to pay and receive funds.
d) Seller grants Buyer full rights to repair, improve, use, occupy, rent out, etc. the property in any manner Buyer deems necessary or useful.
e) Seller does not and shall not have any obligation to fund or make any repairs, replacements, corrections, improvements, additions, etc. to the property before or after closing.
f) Buyer takes full financial responsibility for any and all repairs, replacements, corrections, improvements, additions, etc. needed on property.
g) If Buyer should default, all repairs, improvements and monies paid will revert fully back to Seller.
h) The Sale Contract shall include the following terms: 1) Closing will take place within thirty (30) days after Buyer exercises this Option. 2) Seller’s sale of the Property is and shall be “As-Is”, “Where-Is” and “With All Faults”, and Seller does not make any representation or warranty regarding the physical condition of the property. 3) The Sale Contract shall contain Seller’s standard “As-Is” sale language. 4) Seller shall provide to the Buyer a Seller’s Disclosure Report 5) Buyer and Seller shall each split equally all closing costs and fees.
i) This contract represents a full and complete integration of all terms and conditions and precedents, and represents the entirely of the agreement between the parties.
j) I, ___________ (Seller), understand all the terms of this Option and agree to abide by each one of them. My signature below also declares I have received the Option Deposit money.
and/or Assigns (Buyer) Date
Yes that is correct. Subdividing off one or 2 acres could be part of this as well. I’ve been told that prices in that area are going up so this could be a good avenue to consider in the future.
Don, yes, I am writing into the agreement that I have the right to occupy, improve, lease the current house and anything else I can think of to allow me the control over the property.
My ideal plan is to move 3 of my mobiles onto the land, add the utilities and septic systems they each need (master metered or at least sub-metered) and subdivide the land and carry notes on each individual, new lot/home. I’ve gotten the requirements for all of this from the various jurisdictions that oversee this kind of development. Now I need to pinpoint very specific costs, not just general costs for each improvement. But before I have to do any of that, I can move someone into the existing home as soon as the owner moves out (in 2 weeks). We happen to have the Gem Show here in Tucson right around the corner and hotels are booked and AB&B’s and short term rentals as well. Prices double and even triple so 4 bedroom homes are going for $2000 a week in some instances. This will bring in income right away and then in a couple of months I will put a long term renter in.
I have heard Pete Fortunado speak and he says that many investors would like to keep the loan as long as possible to make more money long term but yes, I agree that I need a cash investor and that some will want that balloon. I have started to hard money lenders here in my area to start with because they will be able to physically visit the property. I’m also planning on reaching out to investors in my local RIA groups, real estate agents who know investors, and cash buyers who buy in this area. Am I on the right track?
I have heard from Pete Fortunado that some investors would like to keep the loan as long as possible to make more money long term but yes, I agree that I need a cash investor and that some will want that balloon. I have started to hard money lenders here in my area to start with because they will be able to physically visit the property. I’m also planning on reaching out to investors in my local RIA groups, real estate agents who know investors, and cash buyers who buy in this area. Am I on the right track?
I’m definitely open to suggestions. To the owner, I’d like to be able to pay over time but that isn’t going to happen so I’ll need to pay her off at the end of the term and perhaps I can stretch the option time out with an extension clause. For my lender, I’m assuming its ideal to do an interest only loan with no prepayment penalties. I would use the rental income to pay off the debt as well as a possible acre selloff to contribute as well. I’ve read interest rates are anywhere between 5-10%. A graduated interest rate would be ok too. Is there anything you would recommend Don?
Oh and also, I’d like to use a private lender for the $180k but have never gone that route before.
Update: because this person is older, I was able to help him get his loan refinanced because we found out from the lender that there are programs we that help senior citizens who might need a little financial help. He qualified and is doing much better financially now
Is there a way to find out who the mobile home park owners are in an area? I would like to market a HIghest Bidder Sale to park owners, especially the ones who just recently bought a park. My title company says they dont really have a list…
Yes I will check on the taxes and confirm that they are paid.
No, I had not considered a Highest Bidder Sale, what a great idea! I will approach the owners about that and see if they would be ok with that.
Good point on moving mobiles. It will definitely cost me more for the expenses of moving and setting up even if they move without any issues.
Thanks for your advice William. At least your situation has a seller who is losing money instead of mine who has his rented out. You are right, I will just offer my max offer in these kinds of situations and let them call me back down the line if they want to. For your seller, perhaps you can list out the expenses they are losing each month and show him/her how it puts more money in their pocket if they dont wait?
Great advice Jackie and its funny because this is just what I did for him a few years back when I bought my first mobile home with him in mind. But after I bought it, he decided he did not want to move out of his long time home and property after all. Now his health is worse so we’re trying to help again. We will take care of him no matter what so it sounds like we will have to wait until he is no longer able to stay in his home and then either try to buy it back at foreclosure or get someone else to buy it on our behalf if we can get the bank to do a short sale.