I’ve done several deals but they’ve all been straight cash purchases, rehab and resell…I now have a homeowner willing to do a lease option or a sub2. They just want out from the payment. Seller is otherwise financially stable. House is very nice with a value of about $180k. Seller owes $214k on an FHA insured 30 yr loan at 4% with payments of $1275. Property would only rent for $1000 - $1100. Seller doesn’t have the ability to bring any money into the deal. I don’t see any deal here but due to the willingness of the Seller I thought I’d ask for ideas before I scrapped it…thanks in advance for any help.
The property owner could approach his/her lender and request a short sale. A short sale simply refers to the process by which the lender agrees to take less than the amount that is owed on the mortgage. The process can take several weeks or months to complete.
If the homeowner fears that he will be unable to make the payments and will probably end up in foreclosure, a short sale is a way to handle the matter without such a large blight on their credit. You then come in and purchase the property for at or below market value.
If the owner is interested in looking into this, the owner should present to his lender your offer on the property.
Has the seller thought about a loan modification. Perhaps have him do the mod and buy sub 2.
Usually I find the seller chooses to keep the property after the mod because the payments are low enough for them to afford
have the seller takes a $200 loss per month, do a lease option on the house at $230,000 for 5 years, if the market is going up.
It’s going to be a tough deal either way
I do not think I would recommend this approach. The seller will still have to cough up $200 per month. What happens when he gets tired of that and defaults on the loan? Even though you have a lease option, I believe the mortgage is in first position to repossess the house. Sounds like a potential nightmare to me.
I’ve done the “let the seller pay a bit every month” under a sub2…but what happens is like John says…they get tired of taking a loss with no upside.
I structure it only on properties I am selling within 6 months with some sort of financial return to the seller as a benefit to him for subsidizing the payments while I’m doing a fix and sell.
It depends on a lot of factors. If the seller is in good financial position as you said, and he cares about his credit, then it’s possible. If his credit is already ruined, then this won’t work. In 5 years his mortgage will be paid down a bit, and he might even make some of his money back (L/O different from a sub2). It’s either that, or he can let this go into foreclosure or sell it and pay $10000 loss now, but i would think he already tried that.
In fact, I’ve just learned from another investor where the seller is paying $400 per month! on a SLO, and the investor is pocketing $700 cashflow