By Jack Rogers |
You have found a private Investor who has agreed to consider funding your first Real Estate project. The investor has informed you that he has to be very comfortable with the deal and is utmost concerned that his interest is well secured at all times.
So, let's say that you have located and negotiated a purchase price on a vacant Single Family Residence (SFR) that needs considerable fixing-up. Let's take a look at some of the details.
1. The house has 3 bedrooms, 2 baths and has approximately 1400 square feet of living area plus a 2 car garage.
2. You have done your homework and based on comparable sales the house, after it is put back in good shape, should sell for approximately $75.00 per square foot of living area which computes to $105,000.
3. You have negotiated a purchase price of $35,000. You have also received bids from three different contractors to complete all necessary repairs in order to make the house totally ready for the resale market. The average bid comes to $21,000 or $15.00 per square foot. The estimated time to complete the repairs is one month.
4. Because of current resale market conditions being slow, you are considering offering Owner Financing. Having met several Note Buyers at The Real Estate Investors Association Meetings, you determine that if you financed the sale yourself, you could expect 80% to 85% on the dollar of the face amount of the Note if you sold it for cash.
5. Financing details and costs- Your investor has agreed that if he/she finances the deal for you, he/she will give you a 6 month loan at 10% interest which can be paid along with the principle due in six months. If for any reason the investor extends the loan he/she will charge an additional 2% of the loan balance.
6. Let's summarize your anticipated costs to determine if this project would appear to be profitable:
Purchase Price......................................$35,000
Fix Up (Rehab) Costs...............................$21,000
Hazard (Fire) Insurance.............................$600
Title Insurance For Investor.......................$625
Appraisal Fee............................................$300
Other Purchase Closing Costs.....................$300
Interest Expense.....................................$3,000
Miscellaneous Expenses...........................$2,000
TOTAL...................................................$62,825
Fix Up (Rehab) Costs...............................$21,000
Hazard (Fire) Insurance.............................$600
Title Insurance For Investor.......................$625
Appraisal Fee............................................$300
Other Purchase Closing Costs.....................$300
Interest Expense.....................................$3,000
Miscellaneous Expenses...........................$2,000
TOTAL...................................................$62,825
The investor will also require a minimum of 4 months interest, even if you sell the property earlier than that. This will reimburse him/her with cost & inconvenience of transferring funds from other sources.
7. Now, let's look at your anticipated proceeds from your resale. You may be able to sell the house to a buyer who can qualify for a bank loan: however, let's look at a worse case scenario and anticipate that you will finance for the buyer and sell the Note:
Sales Price...............................................$105,000
Down Payment.........................................$10,000
Note back from Buyer payable at...........$95,000
Down Payment.........................................$10,000
Note back from Buyer payable at...........$95,000
$697.08 per month including 8% interest amortized over 30 years
SUMMARY
Cash Down Payment................................$10,000
Sale of Note (80%).....................................$76,000
TOTAL CASH PROCEEDS...........................$86,000
Cash Down Payment................................$10,000
Sale of Note (80%).....................................$76,000
TOTAL CASH PROCEEDS...........................$86,000
Less
Closing cost to sell*....................................$9,000
Pay-off loan..............................................$60,000
6 months interest......................................$3,000
Closing cost to sell*....................................$9,000
Pay-off loan..............................................$60,000
6 months interest......................................$3,000
TOTAL.......................................................$72,000
*Closing costs include Real Estate Commission of 6% of Sales Price which you won't have if you sell the property yourself, which you should do.
NET PROFIT..............................................$14,000
Also other things to consider - If you sell in less than 6 months, which you should be able to do with Owner Financing, you will save interest costs. Also if your buyer has bank financing, you will save $9,000 in Note discount. From the information provided, I would say this is a "Go" deal. The better you perform, the more it will enhance your relationship with your investor.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Real Estate Consultant and Coach. 40 years in Real Estate, and 15 years member of the "Society of Exchange Counselors". Land Developer, Home Builder & Rehabber, Mobile Home Dealer & Rehabber. Owned Apartments, Office Buildings, Strip Center, Ranches, and Land. Also owned many Seller-Financed homes, as well as bought and sold $200 million + of Seller-Financed paper. Visit my website http://RealEstateJack.net/ Article Source: http://EzineArticles.com/?expert=Jack_Rogers |  |
This article has been viewed 8 time(s).
Article Submitted On: December 01, 2010
Article Submitted On: December 01, 2010
No comments:
Post a Comment