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Lease option/wholesale deal need advice

jseib

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I have a single mother who is in the process of going power of sale on a home in a good part of Hamilton... Home is worth 214k according to my realtor (exact range is 214-229k) and the home is in great condition... The boyfriend spent a lot of money on the house including putting in a near furnace in August and updating the kitchen...

The home is 3 bedrooms + 1 in basement (unsure right now about legal status of that) and 2 bathrooms (both 3 piece but could use updating)

The home has a 1st mortgage of $182,000 and a 2nd of $15,000 and there are about $4000 in arrears

It`s a messy situation where the boyfriend got her to buy the house in her name and lived with her for just over a year then started pocketing the mortgage payments and then tried to kick her out to move his ex-wife into the home... The owner is a 20 something single mother and Im not emotionally attached to the deal but I would like to try and help her if the numbers can work. While they did live common-law the seller has a police report where he stated they did not live as a common-law partner.

The strategy I have in mind right now is to ask the owners parents to put $19,000 into the deal to bring the purchase price down to $182,000 which would give us at least $32,000 in equity (minus closing costs)

Ideally I would like to do a lease option here but I do not know enough about them in Canada to take a chance on them
 

Thomas Beyer

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offer them $1 cash to 1st and 2nd + arrears .. get 2nd lender onside .. and then pay out 2nd mortgage holder once you have possession .. otherwise too tight (i.e. too little equity) and too much work !

do you have 30K to pay out 2nd mortgage and arrears + holding cost + upgrades ?
 

markl

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The question becomes can she qualify for the property after? What is her credit and income like today? If she qualified in the past can she just qualify again? If not why? Will she be able to qualify in 2 - 3 years?

Can her parents help her qualify? Can she afford to make the monthly payments or would this just put her in a bigger hole?

These would be good questions to start with. Has the making of a good rent-to-own if she actually has good enough income.
 

Jeffrey2144

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You have a few interesting points to work with here. But before we get started I would strongly advise that you do not try to purcahse the home then lease option/rent-to-own it back to the seller. This is a "no-no". Besides if she could support the payments then why wouldn`t she just borrow the $4,000 from her parents to bring her payments current and continue living there?

Since "we" have decided that she`ll have to move-out to make this work you`ll now approach the deal/offer as a way for her to walk away from the debt and troubles her boyfriend has created for her. You`re sorry that she can`t stay in the house but you may be able to get the creditors off her back IF you can work out a deal.

First you`ll need to determine what the monthly payments are. If the terms of the 1st & 2nd are reasonable then you should be able to lease option this property to someone else and still make some money on the monthly spread plus the upfront option deposit.

If the monthly payments are too high then you may need to pay off the 2nd to make this work. If so, why not see if her parents are interested in a joint-venture with you? They pay all the expenses, including the $15k to pay-off the 2nd plus $4k to bring the payments current. In return you cut them in for 30% of the equity and profit (I only suggested 30% because 50% is pretty generous considering they only have to front $20k).

Without having all the details it`s hard for me to say what would work best but I can tell you that you only have 3 options when selling:
If you have a buyer with $$$ but no credit then you only have 2 options. Sell with seller fiancing or as a lease option/rent-to-own (RTO) deal. NOTE: You should expect a bigger down payment when selling w. Owner financing then with RTO as people are willing to put more down when they own it.

If buyer has credit but no $$$ then you only have 1 option. They go get a loan from a bank and become a cash-out buyer.

With this in mind, you might prefer to buy yourself some time to find yourselft a buyer first. To accomplish this you can offer her $100 to give you the option to buy the property from her for $197K sometime over the next 90 days. Have her try to get the 2nd mortgage discounted or she can get her parents to pay the $4,000 to bring her current. If you are feeling generous you could just offer to pay $201K for the property then all her debts are covered. With the option agreement in place you try to find a seller that should be willing to pay you at least $220K with owner financing. This means $20,000 gross profit in the equity (although this will be treated as income for tax purposes if you sell within one year).

I`d call the seller back and find out how low she is willing to go. This isn`t a fantastic deal but has the potential to get you a free house that is generating monthly income -- not bad if you ask me.

I think your best option is to go for the rent-to-own tenant buyer. As you mentioned the property was in Hamilton and your not very familiar with the process then I`d be happy to help walk you through it as I live close-by and invest in the Hamiton area. If you want to learn more about rent-to-owns then you can also contact Mark Loeffler (see above post) or there is also a local group based in Burlington called Income For Life that offers free quick-start classes about RTO`s.

Good Luck and keep pushing forward!
 

markl

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Sorry to hijack the thread

Just a note Jeff we have on occasion been able to purchase a property from a seller and rent-to-own it back to them and they are paying less than they were with a 1st and 2nd in place. That is not even considering that we most times depending on the equity help them pay of expensive unsecured debt as well.

Just something to keep in mind.
 

RedlineBrett

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QUOTE (markl @ Nov 2 2009, 10:00 PM) Sorry to hijack the thread

Just a note Jeff we have on occasion been able to purchase a property from a seller and rent-to-own it back to them and they are paying less than they were with a 1st and 2nd in place. That is not even considering that we most times depending on the equity help them pay of expensive unsecured debt as well.

Just something to keep in mind.

In my opinion this is the best way to deal with someone in foreclosure! truly win/win if the deal is done properly. If there is enough equity you can get in no money down and have title very cheaply if the seller defaults on their rent. The seller gets to stay in their home, gets some cash to get back on their feet and has the chance to buy their property back for a good price as well.
 

markl

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QUOTE (RedlineBrett @ Nov 3 2009, 01:02 PM) In my opinion this is the best way to deal with someone in foreclosure! truly win/win if the deal is done properly. If there is enough equity you can get in no money down and have title very cheaply if the seller defaults on their rent. The seller gets to stay in their home, gets some cash to get back on their feet and has the chance to buy their property back for a good price as well.

Exactly well said
 

jseib

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Update on the situation

With more time I brought in fresh eyes and the final value was pegged at 200-205 with plenty of comparable`s to back it up

We put in an offer to the seller for $165,000 which has been accepted and faxed to the lender, the lawyer handling the power of sale has informed me the lender is going to do a rush appraisal and get back to us in 4-5 days... I`m not holding out a lot of hope right now, the only thing we sort of have going for us is that the original loan was for $160,000 the extra $26,000 is missed payments, arrears etc... We were originally told a much smaller number.. So we are vaguely hoping the lender would rather sell it to us and get the original investment out rather then take over a home with an winterized pool.

The seller is converting the 2nd mortgage to an unsecured loan from there creditor as they have kept payments on that loan current..

The kicker is we put in only 1 condition that the lender had to release the seller from the remaining debt... That makes me ansty but we felt it was the only ethical way to try and do it...


I really really need to find out how to do Canadian lease to own or rent to own deals.. I am literally flooded with leads right but almost all of them don`t have enough equity to do a wholesale deal... Anyone know of any affordable training programs for this? I am thinking of Tony Peter`s seminars but wasn`t sure if there are other alternatives.
 

GaryMcGowan

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QUOTE (jseib @ Nov 3 2009, 10:42 PM) I really really need to find out how to do Canadian lease to own or rent to own deals.. I am literally flooded with leads right but almost all of them don`t have enough equity to do a wholesale deal... Anyone know of any affordable training programs for this? I am thinking of Tony Peter`s seminars but wasn`t sure if there are other alternatives.


I can not comment on Tony Peter`s material, however I can tell you about Mark Loefller`s system and training. Using Mark`s system we have closed on 6 Rent To Own properties and we are genereating over $60,000 per year in cash flow with it. Mark`s system is proven and he is right here in Ontario. For those that are thinking about Rent to Own he is your man if you ask me.
my 0.02
 
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