Need Perspective on a deal please

[tcarlson]

I would really appreciate some guidance on this.

A guy contacted my online add and states that the ARV on his house is $500,000 to 525,000, it is dated but in good condition. Current market value is $450,000. He is two months behind on payments and his business has had to be closed. He is near bankrupcy.

He purchased the house for $375,000 three years ago and will sell on a quick sale to me for $340,000. They want to sell and move within the next few weeks.

Payments at $1786 monthly.

He stated "We can not do creative purchasing/selling we need this house bought out by cash right away. We have circumstances that has us using this method instead of putting it up on the market and selling it for its value. I have a machine shop in Calgary that I have had to close and I am personal guarntee on the equipment and I may not be able to sell the shop due to how bad the machining business is across Canada, so I need to sell our house before I am forced into bankruptcy. We can explain more if you decide to call us"

I would like to offer to get his payments current and then make them until I can sell. I would either try to sell at market value or find a lease option tenant.

My questions are:
1) Does my line of reasoning seem reasonable? I don`t know where I would find the money to get it current or make the payments but I can figure that out.
2) Would I use the Agreement for sale clause in the Contract for Purchase a la Barry`s contribution on the downloads page?

Thanks for your input
Torie

 

[GaryMcGowan]

QUOTE (tcarlson @ Nov 8 2009, 04:59 PM) I would really appreciate some guidance on this.

A guy contacted my online add and states that the ARV on his house is $500,000 to 525,000, it is dated but in good condition. Current market value is $450,000. He is two months behind on payments and his business has had to be closed. He is near bankrupcy.

He purchased the house for $375,000 three years ago and will sell on a quick sale to me for $340,000. They want to sell and move within the next few weeks.

Payments at $1786 monthly.

He stated "We can not do creative purchasing/selling we need this house bought out by cash right away. We have circumstances that has us using this method instead of putting it up on the market and selling it for its value. I have a machine shop in Calgary that I have had to close and I am personal guarntee on the equipment and I may not be able to sell the shop due to how bad the machining business is across Canada, so I need to sell our house before I am forced into bankruptcy. We can explain more if you decide to call us"

I would like to offer to get his payments current and then make them until I can sell. I would either try to sell at market value or find a lease option tenant.

My questions are:
1) Does my line of reasoning seem reasonable? I don`t know where I would find the money to get it current or make the payments but I can figure that out.
2) Would I use the Agreement for sale clause in the Contract for Purchase a la Barry`s contribution on the downloads page?

Thanks for your input
Torie

Verify the ARV. Close with cash with a hard money lender and sell quickly as possible. You should be able to afford any interest the lenders will charge you for borrowing costs. This to me is a pretty cut and dry deal. The seller says they want to cash out as quickly as possible at a very low rate. Give him what he wants and you will get what you want. I`m sure if you ask around here you may find the money partner that you are looking for. You could and should have this property in less than a couple weeks if all the numbers are accurate and sell it at a price to move and your looking at a 100k easy.

 

[tcarlson]

QUOTE (GaryMcGowan @ Nov 8 2009, 04:23 PM) Verify the ARV. Close with cash with a hard money lender and sell quickly as possible. You should be able to afford any interest the lenders will charge you for borrowing costs. This to me is a pretty cut and dry deal. The seller says they want to cash out as quickly as possible at a very low rate. Give him what he wants and you will get what you want. I`m sure if you ask around here you may find the money partner that you are looking for. You could and should have this property in less than a couple weeks if all the numbers are accurate and sell it at a price to move and your looking at a 100k easy.

Thanks so much for the reply. By hard money lender, do you mean borrowing the whole $340,000 at whatever rate I can get and then sell and pay off the loan? Is it possible to get a 100% loan? Or if I can verify the equity, is that incentive enough for them?

I could post an offer on here but do you know of any hard lenders?

Thanks
Torie

 

[Thomas Beyer]

QUOTE (GaryMcGowan @ Nov 8 2009, 05:23 PM) Verify the ARV. Close with cash with a hard money lender and sell quickly as possible. You should be able to afford any interest the lenders will charge you for borrowing costs. This to me is a pretty cut and dry deal. The seller says they want to cash out as quickly as possible at a very low rate. Give him what he wants and you will get what you want. I`m sure if you ask around here you may find the money partner that you are looking for. You could and should have this property in less than a couple weeks if all the numbers are accurate and sell it at a price to move and your looking at a 100k easy.
yes that makes sense BUT consider the RISK too .. this may be too large a deal as the first deal !!

I`d be EXTREMELY NERVOUS closing this deal especially with little cash to cover the 1st 3-4 months of payments and arrears .. thus if you do not have 20K cash don`t do it.

Also, a hard money lender usually requires a personal guarantee so this is not for teh faint of heart !

Also: seller wants CASH SOON .. not an agreement for sale sometime in the future.

So, the suggested strategy is: write him an offer that allows you to tie the deal up for 2 weeks .. then re-sell it for a quick 50K .. maybe 100K if you`re really good .. and/or find a money partners that has 350K cash .. or rent it for $2000+/month and re-finance with a new mortgage within 6 months

Thus: to do this deal ALL elements have to be lined up:
a) money partners, both mortgage brokers, hard money lenders and banks
b) lawyers
c) realtors to re-sell
d) property manager or ability to rent
e) networth binder / ability to get a new mortgage

Doable: yes .. but some significant homework and cash required .. and thus, perhaps a few smaller deals first !!

 

[tcarlson]

QUOTE (ThomasBeyer @ Nov 8 2009, 05:54 PM) yes that makes sense BUT consider the RISK too .. this may be too large a deal as the first deal !!

I`d be EXTREMELY NERVOUS closing this deal especially with little cash to cover the 1st 3-4 months of payments and arrears .. thus if you do not have 20K cash don`t do it.

Also, a hard money lender usually requires a personal guarantee so this is not for teh faint of heart !

Also: seller wants CASH SOON .. not an agreement for sale sometime in the future.

So, the suggested strategy is: write him an offer that allows you to tie the deal up for 2 weeks .. then re-sell it for a quick 50K .. maybe 100K if you`re really good .. and/or find a money partners that has 350K cash .. or rent it for $2000+/month and re-finance with a new mortgage within 6 months

Thus: to do this deal ALL elements have to be lined up:
a) money partners, both mortgage brokers, hard money lenders and banks
b) lawyers
c) realtors to re-sell
d) property manager or ability to rent
e) networth binder / ability to get a new mortgage

Doable: yes .. but some significant homework and cash required .. and thus, perhaps a few smaller deals first !!

Thanks Thomas, I appreciate your perspective! I am going to talk with a physician friend tomorrow (potential JV) and see about a buy and hold option too.

Torie

 

[TodorYordanov]

QUOTE (tcarlson @ Nov 8 2009, 08:44 PM) Thanks Thomas, I appreciate your perspective! I am going to talk with a physician friend tomorrow (potential JV) and see about a buy and hold option too.

Torie

Tie it under a contract first as Thomas suggested and then find the buyer. Move/close fast if the numbers are confirmed.
There is nothing wrong with making 10-15,000, just make sure you are comfortable and can pull it off. Good luck

 

[Thomas Beyer]

QUOTE (tcarlson @ Nov 8 2009, 06:44 PM) Thanks Thomas, I appreciate your perspective! I am going to talk with a physician friend tomorrow (potential JV) and see about a buy and hold option too.

Torie
good .. as you will very likely get a new mortgage for 70% of 500K, or 350K if indeed it is worth 500K ..

problem is that no lender will lend you 70% of 500K on day 1 .. but maybe only 75 to maybe 80% of 340K .. so you`re short 100K .. ask your physician JV partner to put in 120K .. then pay him the 120K back on re-fi plus 30% interest or 50% of profit at your option .. so if you can pull it off you have a 140K in equity after you pay him 120K + 1/2 year interest or another 20K ..

Doable; certainly .. if you can
a) convince investor AND
b) convince seller AND
c) are able to get a new short-term loan AND
d) are able to get a 350K to 400K re-fi loan in 6 months AND
e) can rent it .. or sell it within 6 months

Buy a few new T-shirts .. as you`ll be sweating a LOT ! But then, with a 100K .. you can buy any T-shirt anywhere IN THE WORLD !! (send a photo to REIN !!)

 

[GaryMcGowan]

QUOTE (ThomasBeyer @ Nov 8 2009, 09:13 PM) Buy a few new T-shirts .. as you`ll be sweating a LOT ! But then, with a 100K .. you can buy any T-shirt anywhere IN THE WORLD !! (send a photo to REIN !!)

Thomas, great line!


Torie, keep us up to date with how this works out for you. It sounds like you have good deal on your hands and hopefully you can create a few different exits for yourself.

 

[tonypeters]

Torie,

I responded to your e-mail with a few questions. Did you receive them ok?


QUOTE (tcarlson @ Nov 8 2009, 02:59 PM) I would really appreciate some guidance on this.

A guy contacted my online add and states that the ARV on his house is $500,000 to 525,000, it is dated but in good condition. Current market value is $450,000. He is two months behind on payments and his business has had to be closed. He is near bankrupcy.

He purchased the house for $375,000 three years ago and will sell on a quick sale to me for $340,000. They want to sell and move within the next few weeks.

Payments at $1786 monthly.

He stated "We can not do creative purchasing/selling we need this house bought out by cash right away. We have circumstances that has us using this method instead of putting it up on the market and selling it for its value. I have a machine shop in Calgary that I have had to close and I am personal guarntee on the equipment and I may not be able to sell the shop due to how bad the machining business is across Canada, so I need to sell our house before I am forced into bankruptcy. We can explain more if you decide to call us"

I would like to offer to get his payments current and then make them until I can sell. I would either try to sell at market value or find a lease option tenant.

My questions are:
1) Does my line of reasoning seem reasonable? I don`t know where I would find the money to get it current or make the payments but I can figure that out.
2) Would I use the Agreement for sale clause in the Contract for Purchase a la Barry`s contribution on the downloads page?

Thanks for your input
Torie

 

[tcarlson]

QUOTE (tonypeters @ Nov 9 2009, 03:55 PM) Torie,

I responded to your e-mail with a few questions. Did you receive them ok?

Yes I did, did you get it?

 

[tcarlson]

Thomas, I didn`t get a comittment from my potential JV today. I will keep working on that.

However, I did ask my realtor to pull comps on the property. In doing so he told me that he knows the property and that $340K is a steal and that he has a buyer who will pay $400K-$425K if I do $20,000 of updates.

hmmm

How can I do a simultaneous close and do updates?

Torie

QUOTE (ThomasBeyer @ Nov 8 2009, 07:13 PM) good .. as you will very likely get a new mortgage for 70% of 500K, or 350K if indeed it is worth 500K ..

problem is that no lender will lend you 70% of 500K on day 1 .. but maybe only 75 to maybe 80% of 340K .. so you`re short 100K .. ask your physician JV partner to put in 120K .. then pay him the 120K back on re-fi plus 30% interest or 50% of profit at your option .. so if you can pull it off you have a 140K in equity after you pay him 120K + 1/2 year interest or another 20K ..

Doable; certainly .. if you can
a) convince investor AND
b) convince seller AND
c) are able to get a new short-term loan AND
d) are able to get a 350K to 400K re-fi loan in 6 months AND
e) can rent it .. or sell it within 6 months

Buy a few new T-shirts .. as you`ll be sweating a LOT ! But then, with a 100K .. you can buy any T-shirt anywhere IN THE WORLD !! (send a photo to REIN !!)

 

[Thomas Beyer]

QUOTE (tcarlson @ Nov 9 2009, 11:00 PM) Thomas, I didn`t get a comittment from my potential JV today. I will keep working on that.

However, I did ask my realtor to pull comps on the property. In doing so he told me that he knows the property and that $340K is a steal and that he has a buyer who will pay $400K-$425K if I do $20,000 of updates.

hmmm

How can I do a simultaneous close and do updates?

Torie
you have cash .. or access to cash for 340 + 20 + closing + holding costs ..

i.e. line up the (money) ducks FIRST .. then write offers !

There will be other deals ..

Note the "s" in ducks !!

i.e. if you had 10 potential JV partners, and the first said no, the 2nd (or 3rd or 4th or 7th) will be there !

 

[tcarlson]

QUOTE (ThomasBeyer @ Nov 9 2009, 10:35 PM) you have cash .. or access to cash for 340 + 20 + closing + holding costs ..

i.e. line up the (money) ducks FIRST .. then write offers !

There will be other deals ..

Note the "s" in ducks !!

i.e. if you had 10 potential JV partners, and the first said no, the 2nd (or 3rd or 4th or 7th) will be there !


I look forward to that day. Nice seeing you today.

 

[tcarlson]

I thought I would post this to let you all know where things are at.



Wow what a week! I will outline the whole deal and explain the process that I have gone through to get to this point. I have been a REIN member for two and a half years and have two revenue townhouses bought since joining REIN.



I must first express my deep appreciation to Mr. Tony Peters who honestly has been incredible in terms of answering my questions, educating me, and giving me things to think about that I have never thought about before, in term of real estate. I know that I would not be at this point without his guidance.



On November 5th I received an email from my friend and fellow REIN member. We attended the Ron LeGrand event together and have been encouraging each other on in this venture (I obviously owe him alot in this too). I contacted the vendor who explained his situation to me. He is a business owner who had to close his business this Fall due to the downturn. He is still expected to make payments on his machinery and has not been able to do so. He is two months behind on his house payments.



He was asking $385K but would take $340K on a quick sale. He figured that the ARV was $500K to $525K, as is at $450K. I told the vendor that I was interested and would go to work to do my research and find the cash to close this deal quickly. This is about the point that I made this post and this one http://myreinspace.com/search/rein_members_only/Canadian_Quick_Turn_Real_Estate/108-13984-70775-Need_Perspective_on_a_deal_please.html#70775. I also took a gamble and emailed Tony and Barry McGuire not expecting to get a reply.



Tony graciously connected with me and gave me his thoughts and asked me some good questions in order to get me to think a bit differently. Tony pointed out that TIME is the motivator here and so I needed to act quickly. He helped me develop a plan of attack thinking of my entry and exit strategies instead of just jumping in like I was doing.



I contacted my realtor about the deal and asked for comps and for him to pull the title. He told me he was familiar with the property. He thought that he had a buyer who would pay $425 if I spent $20K for carpet, paint, and cleaning...and they could sell their house. Hmmm I thought to myself....distracted by more money. Yet, as Tony reminded me, I don't have the time to get a mortgage in order to upgrade and hold to sell. I need cash quickly.



The title showed two liens. Tony then suggested I work backwards with the following formula. First, what is the Market Value of the property. Second, subtract $50,000 from that number in order to account for the time of year, the fact that it is an acreage, and this becomes my quick sell price. Third, figure out what realtor and closing fees would be and subtract that (~$20K). Fourth, decide how much profit I want and what would be attractive to an investor ($50K). Then go to the vendor and give him that number. I called the vendor, told him I was not intending to steal his home. I also assured him of my intentions and was open and honest about my calculations and indicated to him that the most I could pay would be $300,000. My thoughts at this point were...really...as if he is going to go for that.



He did but then in all sincerity asked if there was any way I could try for $307,000 as he had two liens against the property that would take an extra $7000 to discharge. At this point I decided that I would give him $310,000 and we would both be happy with the deal. I then set to work on the exit plan.



There are three exits that I now see. One is to find an investor or investors who can bring $310,000 to the table this week in order to close immediately. I would then list the property at the reduced price and work for a quick sale and hope to split the $40K to $50K with the investor. I called my JV connections and posted a classified here: http://myreinspace.com/classified_ads/Joint_Ventures/74-14062-Seeking_310K_for_all_Cash_Quick_Turn_Deal.html A second option was to assign my rights to someone interested in adding it to their portfolio or who sees the quick turn potential. I posted that here: http://myreinspace.com/classified_ads/Joint_Ventures/74-14067-All_you_need_is_Money_-_Ready_made_deal_with_up_to_150000_equity.html A third strategy was to call my realtor, offer him double his commission if he could sell the property this week and bring the buyer to the close.



So...now I am in the process of seeking out the quick cash to seal the deal and make this a win-win-win situation. Any ideas out there on where else I can look since I don't have a list of potential JV partners.....yet?