Hey guys…it seems the more I learn the dumber I get. For some reason I start questioning the basics I’ve took for granted earlier. At any rate a have a few questions that arose when thinking about a given scenario. I’ll just get to them…I apologize for the scattered thoughts, I’m still contemplating the answers to these questions…and well how to ask my questions most effectively.
Ok. Let’s say we have a house worth $390k FMV. The amount owed on the mortgage is $340k (with $5k owed in backpayments etc.). The house requires $5k worth of repairs. So we are looking at $40k worth of equity. Going by the golden rule of purchasing 70% FMV, I should only spend $273k, therefore walking away from this deal.
-Question 1: In an upward market (like that which we experienced where homes were selling in a few days) wouldn’t this deal be worth pursuing?
-Question 2: Since we are currently in a downward market, it seems there is no deal here. Is there anyway we could create a deal out of thin air by doing some sort of creative investing?
-Question 3: Would a bank be willing to accept a SS even though there is equity? Reason I ask is would they take into consideration the foreclosure process and the slow market…and maybe see a SS as a better option?
Hopefully these questions don’t come across as too foolish…as a new investor you tend to question many things you’ve learned prior when coming across them for the first time or contemplating “what if” scenario’s. All feedback is welcome.
In my opinion you are getting caught up on rules. In my market 70% of fmv is basically impossible to find, UNLESS you can see somthing others don’t. While it would be great to find 30% equity, 30% on a 390k home is very different than 30% on a 100k home. Look at what you make for you time and money invested. Maybe 40k in equity is not enough, but depending on your market maybe it is.
Yes I agree it’s up to the person of how much their time is worth so it could fluctuate. On the other side of the coin however, I believe the 70% of FMV is a general rule of thumb to minimize your risk and to guarantee (almost) profit.
would anybody else like to share? and also perhaps share some feedback on my questions above?
Yes, in an rapidly appreciating market, this might be worth pursuing.
No, you can’t create something from thin air. Find a real deal using your parameters instead of finding a stinker and trying to make it something that it is not.
No, the bank most likely will not consider a short sale with that much equity. You can certainly try, but your time might be better spend elsewhere.
In a declining market, you should buy at an even greater discount than normal. Right now, I’m only doing deals that are just too good to pass up.
great to hear from you. hope you are doing well ;]
would you mind sharing a little about the current deals you are doing and what types you are looking for?
i msyelf was thinking along the lines of obtaining some rentals during the current market conditions. however in my area, since the prices were so inflated, even at large discounts it will be tough to see positive cashflow (im referring to SFM homes).
I should only spend $273k, therefore walking away from this deal.
No you should offer $273 and let them either take the deal or walk away. I have had them walk away and come back a couple of months later when they found no other takers.
On deals that are too rich, I always make an offer of what I would do the deal for and then move on. If it comes does not come back no skin off my nose. If it does BINGO!
I had a deal that had a AFV of $160k that needed about $25k in repairs. They were asking $120k I offered $85k. They said no and walked away. I started doing another deal and about a month later they called me back and made a counter offer of $90k. That doesn’t happen all the time but just like trying to kiss a pretty girl, you won’t if you don’t ask.
haha ain’t that the truth. now i got advice i can use for both business and my love life ;].
that reminds me of the quote “you miss 100% of the shots you dont’ take”. while doing my first rehab i negotiated a price down “just to try” for contractors when my partner (father) would say “that’s the going rate, you won’t get any cheaper”. that was proof to me to try and negotiate everything!
He goes to bars and asks every girl there a very lewd question, he gets slapped a lot but some do say yes. If you make 100 super low offers and get 5 responses you now have 5 possible properties. Who cares that 95% of the people were ready to punch you for offering well below retail?
On a sidenote, I did go after the hottest chick I could find and shockingly it worked…she now lives with me.
I had a similar thing happen on my latest deal. Property need foundation repairs; seller declined and I promptly issued a release from the contract. He changed his tune and came back to the table… Now the foundation is being completely fixed on his nickel (like I requested)
