In this real‑estate strategy session, Chris Prefontaine, Van, and Zach dissect a distressed property where the seller has taken a $340,000 HELOC (9.5% prime + 1) on his primary residence to purchase the subject house, now listed around $350,000. The HELOC payment is $2,800 PITI, while comparable rents are about $2,200, creating a cash‑flow shortfall. The team explores why the seller is motivated (overleveraged, daughter’s house, interest‑rate shock) and evaluates creative financing options: a lease‑option/sandwich where the seller subsidizes part of the lease, an Assignment of Contract (AO), and the less‑favored subject‑to. They calculate that buying the property at the $340k owed and reselling near $399,900 could generate a $500‑plus monthly spread if the lease is subsidized. The discussion concludes with action items—obtain the HELOC statement, run comparable‑sale and rent analyses, inspect property condition, and start with an AO before deciding on a lease purchase.
Chapters
Let me bring it to market and let the market talk to you. I'm on your team. Let's see what we can get. I don't know yet because rents tend to go higher these days.
I have a guy that has a property. Well, first of all, he took out a HELOC on his primary residence.
Okay.
And he did that at 9.5%. Well, it's At this point, it's at 9.5%. It's a HELOC that's based on prime plus 1. Those of you have an idea of what that is. So there's some fluctuation that happens, of course, in his interest rate.
Let's start. So, Van, if you wouldn't mind, just in like order of operations so we can kind of work through this deal, just so we have a good understanding too as a background, right? What's the motivation? Seller, what, what's happening with this property? And then let's start with the purchase price and we'll work our way down.
Yeah, absolutely. Um, one second, let me get over here to—
Like, in like an art room?
No, I'm in a coffee shop.
Oh yeah, okay. Yes.
All right, purchase price, you said?
Uh, motivation. Why is this guy selling?
Motivation. So he He is overleveraged. He's in a house that basically if he sells it conventionally, he's going to come out of pocket.
Okay.
Yeah.
Why did he take out the HELOC? What's the HELOC for?
From what I can understand at this point, he took out the HELOC in order to purchase another property.
Okay. Good to know. So we can— when we revisit the numbers, So handle that HELOC. So let's walk through it then. Uh, what's the purchase price on the property?
So right now he's got it up for $350,000.
Okay, $350,000. Uh, is that what the property's worth? Like, have we done any— I'm not expecting to do comps and all that stuff yet, but I just didn't know if he's just like trying to dump this or what.
Right, because he owes $340,000, so, you know, on his HELOC, and he's trying to cover that. So Um, the property, yeah, it could be. It's probably right around that range, maybe tops, uh, $360,000.
Well, where do you get this HELOC? Because usually a bank isn't going to leverage it past 80%.
Yeah, so that's on his primary residence. So it seems he, he actually took out a HELOC on his primary residence, is what I understand at this point, and he used that HELOC, um, to purchase this other property.
What's the payment on the HELOC? I know you said prime plus 1, but like today, what's that mean?
$2,800 PITI.
Okay, what is the rent comps in the area?
Around $2,200.
Okay, do we, do we know, Van, how old the HELOC is? Because PITI right at the beginning sounds odd, but I'm just curious how long he's had it. I don't. Okay, just make a note and see how long that's been in place.
Well, plus I have a copy of that, that, that statement.
Yeah, that's what I told him if he could have when I go tomorrow.
Uh, okay, so all right, $340 payments, $2,800. Um, what, uh, what questions do you have? I mean, well, I'm like, all right, well, you can— if he's To go to HELOC for another property, he could technically—he's assuming he's going to be paying for this HELOC because it's for the other property. You could, in order to make this work, you'd probably need him to subsidize some of this. So which means likely would be a lease option, a lease purchase agreement. So sandwich lease—he subsidizes a portion of it. You cover a portion of it. And he no longer is coming out of pocket that much, and you can lock in— assuming this, the comps make sense— lock in $10,000 for him to get paid at the end. Okay, all of his money. So you're locking it at the $340,000.
Okay. Yeah, so, so that's what I was— when I was talking to, uh, to Rusty, that was what he, uh, came— essentially we concluded that the only way this would work is if he was willing to basically come out of pocket to subsidize a portion of that, um, uh, monthly lease, lease price. So that's, that's essentially— that would be about the only play here, correct?
I would think if you're going to cash flow this thing, unless you do an AO, then it's very unlikely that you're going to get any cash flow. So it could either be an AO or a lease purchase. Now I know we'd all love to have subject-to's on this, but it's a lot easier to get subsidizing On a lease purchase or lease option on this, because you can buy this thing for maybe exactly what he owes, because he's leveraged this thing to the top, right? He knows if he sells, he's overleveraged. So I'd probably buy it for $340,000 on a lease purchase, have him subsidize a certain portion of it so that way you have cash flow, right? Say $2,200 is the top of the market. You get them wherever, wherever you can, right? Anywhere from like $1,000 to probably $1,500, and then you get a nice $500 spread.
Mm-hmm.
Every single month, and you could probably sell it for $399,900.
Okay. All right. All right, man. If I missed this, I'm sorry. Did he— how— why'd he buy this house?
It was his daughter's house, and I don't know why exactly he bought it from his daughter like this. I think he wanted to— he was, he was banking on the interest rates not going up in the way they did. On that, he was planning on renting it, flipping it? Yeah, I think he, I think he was gonna rent it. Okay. He realized he couldn't do that after interest rates went up.
Okay, that's good to know. Yeah, good questions.
Okay. Yeah, but that would be— it's better. It would be more of a sandwich as opposed to a sub-2.
I think an AO or a sandwich, like Zach said. Yeah. Okay.
Because also you're protecting your downside, right? If you get a HELOC with a prime plus 1, I mean, it's, it's all well and good that we could expect rates to go down, but if they continue to go up or stay the same, there's no cash flow. Um, and if it's subsidized, uh, then you're gonna want to stay with a lease purchase.
It's just my opinion. Sure, sure, sure. And you think, and you think that would be good? I mean, even though he's going to, he's going to have to come out of pocket monthly To subsidize it, I guess ultimately that might end up being a better deal for him than what he's going to have to come out of pocket to sell it conventionally.
Oh, I guess he's going to make a break-even, right? Plus, he already took out all of his money. He's got a HELOC highly leveraged on his property. Now he's just paying for the money that he took out. So I don't know what this money was used for. He said he bought another property. Is he renting that other property?
No, I mean, it is the property that he's trying to sell right now. It is this property.
Okay, so it's this property. Yeah. And he took this HELOC out on his primary residence to buy this property. That makes way more sense now. Okay, now I'm clear. Yeah. So I don't like— right now he's paying $2,800. He only has to pay, I don't know, let's say $1,000 or let's say $1,500 or $1,000. Like, you guys are both feeling really good about this.
I would think as long as he feels good, I feel good.
Yeah, yeah, let's keep it very, um, uh, loose, especially if we go the AO route. Um, let me bring it to market and let, let the market talk to you. I'm on your team. We'll see what we can get. I don't know yet because rents tend to go higher these days. So, uh, as long as he's flexible letting you play, it's no time off. It's your, your efforts. Okay.
All right.
I think there's still a deal here. All right.
Yeah, that's good because I thought it, it may not be workable.
Well, I'm so glad you decided to show up. It's good.
Yes. Thank you.
Yeah, definitely get, uh, get comps together after you see the property, look at the property condition, um, and then, uh, get the, uh, HELOC on it. And as Chris said, it might even just be take it to market on an AO, and then once you have a buyer, you make a decision if you want to do a lease purchase.
Okay. Maybe start with an AO. Okay.
Hopefully you're pleasantly surprised and come back and go, hey, good news, I can stay in it. We'll see.
Yeah. Yeah. Okay. Do the AO, stay in it kind of pivot.
