I found a motivated seller who is four months behind on mortgage payments and wants out. He lived at the place for the past four years. The thing is, I just spoke with him today and he had already listed the property with an agent just a week ago. The seller said that there’s a lock box on the door and that’s it. No signs on the yard or anything. He said he doesn’t even know if the property is listed yet.
Another thing is he doesn’t even know how much he is going to sell the property for. Since the property is listed with an agent, do I go through the agent instead of the owner? If I use this formula for my MAO:
After Rehab Sales Price
-Costs of Rehab
-Costs of Buying
-Costs of Holding
-Costs of Selling
=Projected profit
would I have to go through the bank or just the seller?
Example:
Let’s say owner of property bought the home for 100k
Live there for 5 years and made all payments
Now the owner only owes 80k on the mortgage
I make an offer at 50k
Seller accepts (because he wants out)
Now what happens to the 30k that he owes the bank? Sorry for this confusing question. Please advise.
1. Let's say owner of property bought the home for 100k
2. Live there for 5 years and made all payments
3. Now the owner only owes 80k on the mortgage
4. I make an offer at 50k
5. Seller accepts (because he wants out)
Now what happens to the 30k that he owes the bank? Sorry for this confusing question. Please advise.
I’m a bit new to REI, but as I understand things, the bank wouldn’t allow this sell unless they can get the additional 30k. The mortgage is held with the property as collateral, so if the property is being sold they have the right to get their money back and restrict the transaction from occuring. If they dont get their money, the house goes into foreclosure and they get the property. I would have possibly tried a “subject to”, with that you would just take up his mortgage payments. I’m not too familiar with all of the legalities with that type of transaction though.
Anyone with more experience feel free to correct me.
You left out the most important piece of information… how much does he owe the bank and how much is the house worth?
If he signed an agreement with an agent, then you need to go through the agent (depending on the agreement type, but it is most likely exclusive right agreement). I imagine the agent is trying to short sale it if the numbers do not allow it to sell.
Motivation alone is not enough, you need to know the payoff amount, and the equity.
I agree with Fadi that you will probably need to go through the agent. The only thing I would add is that because you are not a real estate agent you can go directly to the owner if you want. It will be up to the owner to decide if he wants to negotiate directly with you or if he wants you to talk with his agent. In the end of the day, depending on the type of contract he has with the agent (as fadi explained above), he may still have to pay a commission to the agent if he closes with you. So more than likelly he will have the agent do the work to earn the commission.
Another option the owner has is to go back to the agent and try to renegotiate a lower commission if he closes with you without the agent’s involvement. The agent would be silly to not accept it… In my opinion.
Thank you all for your inputs. So, basically if there is not enough equity or the owner have not been living at the property for too long then there is no deal?
Well, if you want to buy at a large discount, and they don’t have enough equity, then how are you going to get the discount you need?
If they owe $80k on a $100k house, chances are they will not sell it for $60k for example. Now, if he is few months behind and you want to try a short sale, that is another story. But you still need to figure out your exit strategy (what will you do with the house exactly and how much you must get it at).
Not all light equities means no deals, it just depends on many factors. They would not be traditional wholesale deals though, might be good sub2 deals so you can birddog them.
If this had been a second mortgage, you probably could have negoiated a short sale. But, first mortgage holders usually do not discount. that being said, it also depends on the bank. You would have to be able to provide proof of the home’s distressed value to warrant this type of discount.
The problem is he signed with the realtor, who probably will have no interest in promoting the property because there doesn’t seem to be much equity if any for a commission to be paid. Unless the realtor contract is voided or unless there is a clause releasing the seller from paying a commission if he finds his own buyer, chances are they won’t allow a short sale to go through.
Well, darn it. Since wholesaling this property is out of the equation, I’ll see if I can get a bird dog fee from this one. When bird dogging this type of property, would the buyers I have on my buyer’s list work (these are mostly rehabbers and retail buyers). Or would I have to find other investors who specializes in Sub2 and such?
Thank you for your kind words. Almost lost some motivation there with just that one. I guess I think a little too much. No more traveling to the ‘mind planet’(from Eric Medemar’s course).
It is normal to feel that way at first. Heck, some get to such an advanced stage and still lose hope…
Let me put it this way… What we do is try to find the one odd deal that will make us money. We will get so many calls, some not motivated, some motivated but no equity, and so forth.
We are not looking for any of these… we are just waiting for that one deal that works. I see people trying to get more leads, and more calls but the reality is that you need only one good deal rather than 10 no deal calls.
So every time you are marketing, you are letting people know you are the best option to sell their house… you are their savior. You don’t do that so they all call you. You do it so that one motivated seller with equity might call.
not everytime you market you will get a deal because there is no telling that one of them has all the requirements for a good deal. You market just in case there is one among them.
Keep it up, and keep trying to tweak and improve your marketing till you get better quality results
Good statement Fadi. You definitely want to disqualify as many sellers as necessary until you find the one that NEEDS You! Find the sellers that absolutely have to sell and you put a deal together that makes since…
Now, I’m not for forcing a deal, However I am for looking at multiple options in order to help someone sell their home.
In the above scenario, I’d probably do a shortsale. However, you can also to a lease option or a subject 2 deal. If its in a good location and you can get some nice terms, then an investor may be turned onto the idea of catching up the payments and taking them over for a certain amount of time that would make sense for him/her.
Understand that if you’re yet to be a well-rounded investors, then its best to just focus on the niche you are good at, until you are ready to move on. If you haven’t learned about shortsales and your just getting into wholesaling, then I’d focus on wholesaling or vice versa. As you develop and grow with that niche, then and only then should you move onto other niches and you will know if your options will be able to help a seller or not. If not, just move on as there are millions of homes on the market.
