Scenario:
My brother is 24 years old. He is in the Army. He was living in Colorado Springs on permanent duty and he and his wife bought a house. When he was deployed to Iraq his wife cheats on him and he finds out when he gets back and they divorce. She puts on a lot of weight and is really in bad shape now. He’s OK. Irrelovant. He gets restationed to Hawaii. He was renting the House in Colorado out to his wife and her boyfriend. I’m not sure why. Just the easiest thing I guess. Blah Blah Blah… Now it’s July 2008. He has told his ex-wife that he either wants the house to be in her name by August or them moved out by August. They are opting to move out. My brother is gettting relocated again to North Carolina. He can’t afford the $1100/month mortgage payment on an empty house obviously. I am not really familiar with this type of situation and what would be the best way to get rid of the house.
Estimated Value of House: $150,000
Mortgage Balance $150,000
Even equity. Anything is an option. I have considered a few things tell me if I am right or wrong and what our best course of action is. I am just helping him out because he has no clue about real estate.
Option #1. There is an air force base nearby that would I will probably market the house to quite a bit. Lot of people with steady income there to consider. I think a Lease option is likely the best way to go with this house. Given the bad equity situation and distance. Plus, to me it seems like a Lease Option would be appealing to someone in the military who may be forced to relocate at some point.
Option #2. 7 day Sale.
Option #3. Rent it out
Option #4 You tell me?
I will be going there in mid august to sell the house however we can or at least get it occupied/rented out. Renting seems like it’d be tough because no one will be around to take care of all the little rental problems. House is in CA I live in MI he will live in NC. L/O takes care of that kinda.
I will be working with a $3000 budget to get the house sold it is in pretty good shape. I will do some prepping and staging when I get there.
I plan on signing contracts with him ahead of time Option to Purchase, Lease Option, any other necessary paperwork to make sure everything we’re doing is legal. Once we nail down a plan of action we can get into more details.
What’re the thoughts of REIclub?
Thanks in advance for the help,
Jordan Laubaugh
How much did he put down when he bought the property? If he got 100% financing during the runup I would say sell the place and forget about any profit.
The lease option is an idea certainly worth exploring. I’m not a big screener of tenants, but because you both live a good distance away I would be prudent in your tenant selection. A lease option with a good tenant should hedge you against cumbersome maintenance issues.
Sounds to me like you already know the different avenues that you have available to pursue and you are preparing yourself by signing docs in advance, etc.
Isn’t the wife on the hook for 1/2 of the mortgage?? She’s going to have to approve of whatever course you decide, I would think. Never been divorced so I’m not speaking from experience here but if she’s on title and/or the note she’s going to have to be considered. Good luck.
Wife and her significant other are paying $600/month rent which is super low and really just my brother being too nice. I would’ve kicked that skank to the curb. But I’m an Ahole. She is willing to go along with everything and she isn’t on title. Divorce got rid of that. They are set to move out August 15. I will be showing up August 15. Clean the place up make it nice and try to get it sold. I hope to be there for no more than 2 weeks. 1 week for prep/stage and 1 week to market and find a buyer/tenant.
To be honest, We aren’t worried about making a profit on this deal. I am doing this as a favor to him and he just wants it gone. The main concern is avoiding foreclosure. Because he is moving in August and taking a $500/month paycut. So there is no way he’ll be able to pay the mortgage anymore. And I don’t want to see his credit ruined and everything because he is stuck with this house.
Renting is an option. But, it’d have to be clearly stated that the tenant is responsible for any maintenance that comes up and stuff like that. Plus we’d definitely want a 12 month agreement signed and a big security deposit.
Kinda if we get it occupied with a rent. Any amount over the mortgage payment each month goes to me. So $1100 payment if the house rents for $1400 that’s $300/month to me. Worthwhile I guess. Again neither of us are concerned with profiting here. Just need to get rid of a problem. Also, I feel it’s a good chance for me to get my feet wet in this stuff.
Some striking similarities here to what happened to me…only I wasn’t so nice. My judge ordered her to either re-fi in her name only within 60 days of the divorce or she had to sell it. She didn’t refi, so I called a Realtor and told them what was owed. I said to add in the commission and sell for the commission and payoff. The price was below market value at the time so it sold quickly and I got it off my credit. In a messy situation like this, it’s probably best for someone to come up with the amount of commission (your brother or even the ex) and just sell it for payoff. Good luck finding someone to rent it if they have to be financially responsible for everything that goes wrong. Also be prepared for them to possibly do something to the property to leave it in a mess when they leave.
I believe you said its near an army base or something ?? I read somewhere that military men have to have their rent paid or they get in some sort of disciplinary action.
theres really only to scenarios here.
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sell the house. at cost or maybe even lose a little money. then your brother doesnt have the problem anymore.
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Renting the place. what can it rent for ?? you never mentioned that. if it can hold its own as a rental then maybe that would be a way to go.
only you and your brother can really figure this thing out. He should have never rented it out to her at below market rent.
Jordan - I commend you for helping your younger brother. You are doing the right thing.
Not sure if lease option would be the best option in this case - you would still need to deal with a tenant. I am not sure if you can transfer all the maintenance responsibility to a tenant. I believe some states do not allow it - for example I believe there are some states that require the landlord to be responsible for things that impact habitability (I hope I typed it right) and security. So if there is a problem with the house’s foundation for example, I believe your brother would still be responsible.
It seems that he has a 8% interest rate in his mortgage ($1,100 payment on a $150k loan). He could try to do a sandwich mortgage (I believe this is how they call it) - he could sell the house for the amount he owes and finance the sale a point or 2 higher than his current mortgage. He would pocket the difference between his mortgage payments and the payments he receives from the buyer. The risk would be if the buyer defaults. To minimize the risk, he could ask for a down payment from the buyer and save the money. He could then pay the his mortgage while he regains possession of the property.
As you can see I am no expert and I may be way off… However this sandwich stuff may work in your case… Hopefully someone else can chime in and provide insight if this might work or not…
Good luck! Please keep us posted.
Have a nice evening!
Well the house is fairly new in a pretty nice neighboorhood in Colorado Springs. There are no major problems with the house. I will get an estimate on monthly rent. If we could get it rented out on a 12 month agreement that would be a pretty good option. For one, if it was a good military tenant than after the year was up it would probably be more easy to sell with the equity. I just don’t want to get into a rental agreement on the basis that hopefully the tenant will be good and take care of everything. Need to have the worst case scenario covered. If it rents for 12 months to a decent tenant than it would be worthwhile. Just need to have a pretty strict rental agreement.
I also think a Lease Option would be appealing to a some military people. Similarities to a rental just more options. Plus I can get a higher price from a lease option than just selling it straight up. Also, Option Consideration money of like 2-3%. Again we are pretty open to anything. The wife is not gonna be a problem she will be gone by the time I get there.
Also, he is my older brother 
Liquidity,
You are somewhat right about the disciplinary action for military members. It is very easy for a creditor (in this case, Jordan or his brother as the landlord renting to another Army person) to contact the service member’s command and let them know their person is behind on bills. They will then get “motivated” by their command to take care of their financial issues. If the command gets enough calls from creditors, it definitely can affect their performance evaluations as this is a basis for the person’s character. That’s why so many people like to rent to miltary people…because the landlord can likely recoup their money and also not have to go through the court system with a lawyer, etc. As a whole, the military in general doesn’t like it when one of their own is getting into trouble and not living up to their obligations. They don’t like things bringing discredit upon the service. When a service member does something like that, it’s not “Joe Smith of Anywhereville did such and such.” It’s “A soldier/airman/marine/sailor from unit so and so did such and such.”
Which I think will help when trying to get this place occupied. It is very close to an Air force base and an Army base. Also, in great location in Colorado Springs.
Jordan,
If you are going to rent it out, my suggestion is to visit the housing offices on each base. Most of the time, people are required to visit those offices upon check-in to the command. They are a housing referral office. If you tell them your brother (mention he’s a service member) has a rental, they may help steer people your way. It’s great free advertising.
Military people have to pay all of their bills or they can get into trouble…
Keith
Justin,
My brother had mentioned that the bases have specific housing departments. I am working on getting the contact info for them so I can call. I just have to make sure I can get a rent that works and that they’ll be interested in. $1100/month rent seems really high and that is the absolute lowest possible. I don’t see how someones gonna pay $1300/month for a 3/2 rental when they could be paying that amount on a mortgage.
Which is where Lease Option could bring in some more possibilities
What you’re saying is the exact premise behind people owning rental properties in the first place. The key is that people pay rent that’s higher than the mortgage payment for most places anyway. Otherwise, you wouldn’t have people wanting to rent properties because they wouldn’t even be covering the mortgage with the rent.
Why would someone want to pay rent like this???
Many people that rent CAN’T get mortgages for credit reasons. They’re forced to pay rent because they can’t buy.
Another factor with the military is the frequency of moves. There may be someone who will only be there for 6-9 months for a school…or maybe they’ll only be there on 2 year orders and it doesn’t make sense to buy especially in today’s market.
You have to see what the market rents are for that size of house in that area. $1300 rent where I grew up should rent you a huge house. $1300 where I’m currently stationed will get you a fairly small 3 bd/2ba house. It’s all local to the area.
Justin,
Thanks that was insightful. I’m pretty ignorant about the rental market. But what you described sounds pretty accurate. Well, I just got in touch with a landlord in the springs who has agreed to help me out with some figures. Thanks
Jordan