Any thoughts on doing this RTO with no/low money down?

[MG911]

Have an opportunity to do an RTO with someone who currently owns their house. They currently have an associate as a co-signor however the associate now wants off title and to no longer be attached to the mortgage.



The owner is unable to qualify on her own due to slightly bruised credit from a divorce and would like someone to do an RTO with her. She has $16,000 to put down as option money and has good income. The mortgage has $552,000 left @ 3.79% for another 16 months. Property is currently appraised @ $570,000.



To buy this from her traditionally@ 20% DP, and turn around and RTO it to her would require approx. $115,000 investment. The deal would cash flow nicely for the 3 year term she is seeking and shows 38% ROI p.a. based on an agreed purchase price and monthly rents. So not bad.



However, less capital is always better and lets assume I qualify for the mortgage:



- It was suggested to consider assuming the mortgage in an effort to put as little into this deal as possible. I have no experience with assuming a mortgage - would this be a good option? Rate is high, but not sure how much cash would be required in this approach.



- I'm also wondering if anyone would consider taking over the co-signor role and having an RTO inside this arrangement?



- Would a lender typically be happy swapping out the 2 'less qualified' people on title for someone with strong credit and qualifies?



- Any thoughts on doing this ethically/legally without 20% down and doing an RTO with owner?



Thanks for any input.

Michael

 

[Sherilynn]

Let the numbers do the talking.



Compare your ROI if you assume the higher-interest mortgage with low money down to your ROI with 20% down and a lower interest rate.



If the ROI with low money down is the winner, then also factor in the opportunity cost for qualifying for this mortgage at X total profit vs. buying this or a different property with 20% down. If you already have quite a few properties and you are reaching your limit with the banks, then even if low money down gives a higher ROI, it may still be better to put more money down for a bigger chunk of profit if you are unable to qualify for another mortgage after this one.



BTW, I would absolutely NEVER be a co-signor on a mortgage with an RTO client. If you did, you would have a tenant with equity in the house. You could never evict, and you could never foreclose.

 

[MG911]

Agreed on the co-signor issue. Lender wouldn't talk to me at all on assuming so now waiting on consent from owner/tenant/buyer.



Michael

 

[MG911]

No surprise I suppose but lender wouldn't go for assumption as property would be considered a rental property under my ownership.