Low Equity Deal Case Study

by: William Tingle

I thought I would share a low equity deal we are working on right now as a case study. Here is one we are in the due diligence stage on right now.

The lead came from a drive-by photo sent in by one of my “boots on the ground people”. They have a list of areas I like and when they are out if they see a house with a for sale sign or one that looks vacant they snap a photo in an app we use (see the app HERE) and it comes straight to me. I take it from there and make contact with the owner.

This one was a couple who just bought the house last year. The husband was deployed and while he was gone his wife stayed with her mother most of the time and by the time he returned she had met someone else and wanted a divorce. Neither one of them want the barely lived in house so guess who they were glad to give it to? That is right, whoever asked for it. It could have been you and the answer would have been the same…take it.

This deal had a little, “right place, right time” luck involved.

It is a little on the lower end of where I usually like to buy but the location is great, a newer, nice little neighborhood and the terms make it a real money machine.

The loan on this 3/2/2 originated in August of 2018 for $117,250 and the balance may be a few bucks below 117k but not much. We are still waiting for the loan balance numbers now.

The comps in the area are from the loan balance to the upper 120s so this one will probably come in at 92 to 95% LTV. No equity, really but in like new condition with a 4.25% VA loan. I love VA loans.

The payment on this one is $577 PI.

It will sell for probably 135k with 10-12k down and owner finance it at 9%.

So if I sell for 135k and get 10k down, I will finance 125k for 40 years at 9% and get a PI payment of $964.

Going 40 years lets my buyers have a slightly lower payment and lets me work on having a bigger backend payout on a low equity deal.

Let’s see how the numbers work out assuming my buyers stay with me 3 years before getting a new loan after working on their credit with an assigned credit repair person during that time.

My payout will be 0. The payments are current and the house needs absolutely nothing.

My profit will be:

10k Down
$387 a month for 36 months = $13,932
$13,190 backend (the difference between what I owe on the underlying loan and what my buyers owe me when they pay me off)

Total Profit on an almost NO equity deal = $37,122

Now we are still in the dd process with this one but I am pretty sure everything will work out fine. Most all of them do.

There are literally thousands of these out there just waiting for you to take over the payments on them. Do the math. How many do you need to never have to go back to a JOB? I am guessing not too many.

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