I take no credit for this idea as Ryan Needler is the MAN! for coming up with it. Implementation was my thing.
A dealer, my landlady actually, approached me about a retired couple who wanted to buy a home but could not get financing. They had very recently completed a BK due to medical bills (another reason to vote for Obama and eventual universal health care) but had kept their previous home and a few other bills good. The home was $20K and they had $10 to put down plus a few $K in reserve. No lender would touch them.
I am and have been for some time offering $2K to anyone who brings a home into my community. What Ryan suggested was to pay that $2K to an investor to up his return as the buyers really didn’t need the money to complete the purchase/move/set-up. Here is how the deal was structured:
total price: $20K
down from buyers: $10K
note payable at 16% for 5 years: $10K
money from investor’s ROTH IRA: $8K
my money: $2K
return to investor: approx. 25%
If the buyers default, I do not charge the investor lot rent and I will assist in getting the home ready to sell and doing the marketing and applicant screening.
In the interest of full disclosure, I have to tell all of you that I provide a full concrete pad measuring 15’ X 67’. And I put in a pad for the shed made out of compacted road base and measuring 11’ X 13’. Upgraded water lines with double shut-off valves. The buyers want to put in a raised bed flower garden next year and I offered to pay for the materials and plants and long as it is next to the street for all to enjoy. In other words, I have nice lots.
Why would I do such a crazy thing? I get all my money back in less than 10 months, the home is the nicest in the park, I believe I can attract better residents with this method and I hate fixing up homes and selling them. Now I can go out to the other dealers in the area and give them a concrete example of how the program works and get them working for me to find more “make sense” deals.
Why should an investor do such a deal? 50% down, low debt/income ratio, income not based on having a job, 10 year old home in top condition, no need to go out and find a Lonnie Deal, no need to deal with loser buyers with no cash, gets to deal directly with an owner instead the PM, no lot rent if the buyers default, etc.
If it worked once, it will work again.
Wheat Hill MHC