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How a $26,000 Note Fell iInto My Lap

by Ron Culverson (CA)   

I can't believe the deal that fell into my lap a couple of months back. I was helping my parents sell their home "for sale by owner." At the open house, an interested buyer said he was interested in the larger home, but they needed to sell their house first.

I asked what the situation was. They said they assumed the loan on the property four years ago, and that it was a non-qualifying government loan that was already 13 years paid on a 30-year amortization. They said the balance of the loan was $84,000 @ 9.5% and a payment of $977 (PITI). They wanted $5,000 for their equity. I told them that I may be a buyer and wanted to see the place.

I ran some comps and learned that the house was on the largest corner lot in the neighborhood and some of the comps were showing a value of low $100's. I though there was probably a lot of work needed, but I met them at the property anyway.

The property was in great condition, so I immediately made them a full-price offer of $89,000. I would have offered less, but I wanted them to feel obligated to make my parents a full-price offer as well.

Within a week of closing, I had a buyer for the home at a sales price of $114,900. I asked for $5,000 down and carried a $26,000 2nd note at about $200 per month. They assumed the first (non-qualify, $45 fee) just as I had done.

In summary, I have no money invested in the property, I'm not responsible for any mortgages, have a $200 per month cash flow, and have a $26,000 note that I will probably discount after it's seasoned for handsome cash out.

I thought seriously about wrapping the non-qualifying loan, as they are hard to find these days, but I decided to make it a clean deal. Besides if the buyers ever default on my note, I can get the property back and do it all over again anyway. Thanks for providing such an informative and profitable website.

 
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