Deal or No Deal?

As I said in my previous blog entry, I created a tool to help me evaluate whether a property is a good candidate for taking Sub2 and selling via owner-carry financing. I put the tool through a test with the most recent deal I passed on. The deal was for an SFR that was built in 200. It was a 3/2 with 1500sf, and only required paint and possibly carpet. The owner was willing to let it go for just some "u-haul" money in order for her to get an apartment. The double-edge sword was in the existing financing. It had a 15yr loan vs. the normal 30yr loan, which made the payments a lot higher, so renting it our would mean negative cashflow for a few years. Putting the figures in the tool, though, showed it was an ideal candidate for Sub2 with owner-carry financing:

Deed of Trust: Sep/2003 for $126,500
Loan: 15yr @4.75% (approx)
PITI: $1,500/month
FMV: $120k-$125k
Repairs: $1,250
Marketing: $500
Taxes: $363.59/mo.
Insurance: $54.16/mo.
PMI: $95.18/mo.

For the owner-carry portion, I would sell the house at a slight premium ($129,900) and request at least $5k down (more like $10k) with an interest rate of 9.5% on my 30yr loan. Running all the figures into the tool, I got the following:

Original Loan                 New Loan
-------------------------     ------------------------------
Amount ..... $ 126,500.00     Amount .......... $ 124,900.00
Rate .......         4.75%    Rate ............         9.50%
Months .....          180     Months ..........          360
PMI ........ $      95.18     Term (Mos.) .....           24
Payment .... $     983.96     Payment ......... $   1,050.23

Acquisition/Holding Costs     Other
-------------------------     ------------------------------
Taxes ...... $     363.59     Months to Sub2 ...          30
Insurance .. $      54.16     Months to Hold ...           3
Repairs .... $   1,250.00     Downpayment ......    5,000.00
Marketing .. $     500.00
Other ...... $   2,500.00

Original Loan Balance - At Acquisition ........ $ 111,139.43
Original Loan Balance - End of Hold ........... $ 109,500.86
Original Loan Balance - End of Contract ....... $  95,669.14

New Loan Balance - End of Contract ............ $ 123,283.11

Monthly Cashflow .............................. $      28.91-

Profit Recapture
---------------------------------------
Downpayment .............. $   5,000.00
Monthly Cashflow ......... $     693.84-
Holding Cost ............. $   8,740.67-
Difference From Loans .... $  27,613.97
                           ------------
                    TOTAL: $  23,084.28

So this is a very good deal after all. The ONLY thing that I don't like is the monthly negative cashflow. But this can be offset by asking for a larger downpayment. If I ask for $10,000 down instead of $5,000, I will still make a nice profit AND won't have as much risk:

Original Loan                 New Loan
-------------------------     ------------------------------
Amount ..... $ 126,500.00     Amount .......... $ 119,900.00
Rate .......         4.75%    Rate ............         9.50%
Months .....          180     Months ..........          360
PMI ........ $      95.18     Term (Mos.) .....           24
Payment .... $     983.96     Payment ......... $   1,008.18

Acquisition/Holding Costs     Other
-------------------------     ------------------------------
Taxes ...... $     363.59     Months to Sub2 ...          30
Insurance .. $      54.16     Months to Hold ...           3
Repairs .... $   1,250.00     Downpayment ......   10,000.00
Marketing .. $     500.00
Other ...... $   2,500.00

Original Loan Balance - At Acquisition ........ $ 111,139.43
Original Loan Balance - End of Hold ........... $ 109,500.86
Original Loan Balance - End of Contract ....... $  95,669.14

New Loan Balance - End of Contract ............ $ 118,348.03

Monthly Cashflow .............................. $      70.96-

Profit Recapture
---------------------------------------
Downpayment .............. $  10,000.00
Monthly Cashflow ......... $   1,703.04-
Holding Cost ............. $   8,740.67-
Difference From Loans .... $  22,678.89
                           ------------
                    TOTAL: $  22,140.00

I checked the courthouse records, and it appears the owner is still living there (although, the online courthouse records are about 2-3 weeks behind in most cases). I've already started drafting the owner a letter, so we'll see what happens. Stay tuned.