I’m looking for opinions on a possible 1st deal. The agent I’ve been working with has an owner that wants to sell his house and then rent it from me (assuming I buy it). He is in pre-foreclosure and is looking to take the money he’s earned in equity to pay off his bills.
He’s asking 140K. 9 months ago the same model sold for 143K. Obviously I’d want to talk him down. But just working with the numbers as is, I’m looking at an IO loan of 140K @ 7% gives me a mortgage of $817. Add in taxes and monthly costs are roughly $1035. I’m still trying to figure what rent goes for in the area as well as what his current mortgate is.
Even though there isn’t room to do a cash out re-fi, I’m leaning towards the deal since there is already a willing tenent as well as possible cash flow.
Am I over-looking anything really major? And what are your thoughts about this deal.
You need to know what rents go for in the neighborhood. If not you have no idea if it will cash flow or not. That would be gambling not investing. Call on the for rent signs in the neighborhood and find out what they are asking for houses just like yours, or get a real estate agent or property managment firm to research it for you.
Also don’t base the price on
9 months ago the same model sold for 143K
Find out what the same models sold for over the last 12 months average them and use that for the comparable figure.
Re:Rent or Sell…What should I do??
« Reply #9 on: Today at 06:51:23pm »
how much rent can you get? have you locked into a lease agreement witha renter? are you charging enough rent to allow a cashout refi without upsetting your DTI?
Here’s what I recommend: PITI x 1.35 = minimum rent
You can figure out at 90% LTV what your payments are after the cashout refi, and use that as your new PITI - are you going to be able to get that in rent? Will the price for rent compete with other rental properties in the area?
A lender will only look at 75% occupancy rate, hence your net rent could generate a positive or a negative cash flow and increase your debt to income ratio.
you know he is in pre-foreclosure then you are crazy to pay retail. You should consider to do an equity buy-out.
Like Keith said, renting to this guy is a bad idea. This is one of the major things foreclosure experts say NOT to do (I’m not one myself). This guy will assume the house is still his and you will be luck if he keeps current on rent.
Consider to check out www.foreclosureforum.com for more info on equity buyouts and dealing with former owners/new tenants.