Possible Deal

[JaredfromIndiana]

After realizing that flipping houses alone wasn't going to make us rich we decided to start opening up our minds to other ways of dealing in real estate. One area we are working now is subject 2 and lease options. Here's a deal we looked at today that we are going to pursue:

ARV $85,000
Owner owes $61,000 and is $3,300 behind in payments
House is 12 years old and needs new flooring in the kitchen and 2 baths, plus the interior painted,so around $1,500-$2,000 in rehab costs

Our plan is to assume the mortgage and negotiate with the bank to take the $3,300 in back payments and apply them to the back end of the mortgage.

So we take over at $64,000 + rehab costs = $68,000.

We market it as a lease option, get $5,000 down and sell for $85,000 in 6-12 months for a projected profit of $20,000, give or take.

Any thoughts?

[flippinout]

It sounds like a great deal, but is now a good time? Taking into consideration the state of the economy and whats happening in real estate lately, are you going to be on entirely safe ground by doing this at this time?

As long as this new project wont be a big drain to your pocketbook, I would go with it too, but I am pretty reserved when it comes to taking that big a chance. In other words, I would probably chicken out.

[JaredfromIndiana]

There isn't really much money coming out of our pocket and the payoff will be great. I think now is the BEST time to do deals like these. Taking properties with little or no money out of pocket and finding folks that need a little help to become homeowners is where it's at. I think this kind of deal is going to be as hot as flipping was in 2005-07.

When we screen a potential buyer, we do a criminal background check, a credit check, and we require that they enroll in the credit repair program with our partner who is also a convential lender. Once we get the okay from him we move forward. We also get a LARGE down payment (non refundable, but applied to the purchase price once the buyer can get qualified) so that we know the buyer is serious. There is no "no money down" here.

As far as being on entirely safe ground flippinout, I don't think that exists anymore. Not sure that it ever did. Unless you are working for somebody else and then my question to you is: Is that entirely safe?

[flippinout]

Well, it certainly looks like you put a lot of thought into this, and I wish you the best of luck.

Seems you are prepared for anything with all the bases you have covered.

And, you are right, even working for someone else, you arent always on safe ground there either.

Please keep us up to date on this venture, if you would. And, once again, best of luck.

[JaredfromIndiana]

Thanks Flippinout...

[badmomma]

Well I think you have something here. The market may be a
little shaky right now but this is a good way to get houses.
Are you talking about taking foreclosures? If a person wanted
to get out of their home this way what would they be getting?
These questions seem silly even to me but I have to ask so
that I can understand.

[JaredfromIndiana]

Originally Posted by badmomma

Well I think you have something here. The market may be a
little shaky right now but this is a good way to get houses.
Are you talking about taking foreclosures? If a person wanted
to get out of their home this way what would they be getting?
These questions seem silly even to me but I have to ask so
that I can understand.

Hey badmomma. Right now we are working about 5 deals that could be either subject to or we might wholesale them.

The reason we are taking down properties this way (subject 2) IS because the market is so shaky. We are staying away from paying cash or getting mortgages to purchase homes outright and rehabbing or flipping houses unless we get a heck of a deal. Even then we will probably try to get it subject to or wholesale it first.

One of these deals has had the foreclosure process started on it. The others aren't behind at all, just need to get rid of the house. Let my explain it this way...

BM (BadMomma) sees one of my WE BUY HOUSES signs, calls 704-BUYS and we talk. BM's situation is this: Her husband BD (BadDaddy) needs to relocate for his job and has 30 days to move. The house they own is worth $90,000, they owe $75,000, and it needs painted inside and new carpet in some of the rooms.

There are 2 things going on here. 1 is the time frame (which is actually one of the deals we are working now). BM and BD need to move NOW. If they list in in this market there is minimal chance it will sell quickly, especially in the time they need it to.

The 2nd thing is the repairs need + realtor fees, etc. If they were to do that they would barely break even if at all.

That's where I come in. I'm a problem solver. On this case I would talk to BM and BD and let them know that I can come in and take ownership of the house subject to the existing financing, which means they would sign the deed over to my business and I technically own the house. The only downside for them is that the mortgage still stays in their name untill I sell the house outright. I am open and honest and explain to them that it might take 2 years to sell it.

They decide this is their best option since they can't afford 2 house payments and the deal is done and they are free of the headache.

From there I send a crew in to paint and replace a little carpet and start advertising the crap out of it for a lease option, which I explained that process above.

The scary part of this for us is not being able to sell the house or if somebody trashes it or something like that, but this business is about risk and trying to minimize it as much as possible.


I hope that explains it a bit. Feel free to ask any questions you have. I am still a newbie at this method but have a great mentor that does this all day long.

[JaredfromIndiana]

Well, the deal isn't quite going as planned. The seller found out the the mortgage was assumable BUT only for an owner occupant. The conversation went as follows:

Seller: Hey Jared, the lender doesn't have to know that you are going to lease option it, just move in for a week and you can say that you are owner occupant. Easy.

Me: Um, yeah, that's illegal man. If I start doing things like this what else am I going to end up doing? This is how it starts and no thanks.

Seller: Come on, lot's of people are doing things like this.

Me: Yeah, lot's of people are selling drugs and making damn good money too! No thanks, not like this.

Seller: Well then you can buy the house from me on a land contract.

Me: No, I want control of the property.

I then told him I needed a day to think about how to do this legally and ethically. It's stuff like this that really sheds light on how things can go bad quickly. No thank you. To me making $20,000 isn't worth doing something illegal.

[flippinout]

Good for you Jared, for sticking to good ethical reasoning on this one.

I imagine that there are a lot of people that would do just what that guy suggested, but as you said, it is illegal. No amount of money is worth the good reputation you have built through the years.

Kudos to you Jared.

[Lady Flipper]

What happened to this? Interesting case.