Guy calls in, he was in an accident and was laid off because of down time. He is 5 months behind on a HUD loan, but it is suspended until September. Normally I think this would get him out, but since he is laid off he has no income. He bought it a year and a half ago at 137,000. Interest is 5.5, payment almost 1k and includes PITI.
Here are the numbers. For expenses I rounded up, income rounded down to be safe:
Balance Owed - 135,000
Back Payments - 5,000
Total debt - 140,000
Current Value - 150,000
(Insurance appraisal, comps coming soon)
1 year appreciation 3% - 4,500
Rent to own premium 5% 7,500
Additional Principal - 2,200
5% down payment - 7,500
Assuming cash flow at neutral at this point, but Im betting it will be positive.
Total Income - 31,700
To me it looks good. Its in a good area. Its a subdivision that isn’t wildly popular but is known to be very safe and quiet. Good for upcoming families. The house is a 3/2.
Let me know what you guys think and if you see any errors!
I’m working on that as we speak, but from what I know it could get 1k.
I’m no property manager though.
I’m also thinking that if someone is doing a rent to own, they most likely arent going to have THAT good of credit to get a 5.5% when the time rolls around, so they may be excited about a 1k starting rent. I dunno. I’ll be safe though and check around.
Oh and I forgot. Is doing a sub2 with a HUD loan any different than normal? Are there forms I have to fill out, or anythnig that is riskier since it is the GOV?
If market rent is $1k you shouldn’t have any issues getting $1200 or so if its a lease option. What are you looking to do for rent credits? Maybe $200/mo or so?
I’m not sure if I am going to do rent credits. From what I have read, if the tenant buyer backs down it can cause trouble.
To be honest I’m more worried about the parts up to getting the deed. If I do this one it will be my first real estate move and I have yet to learn the paperwork parts. I have Wendy Pattons book and I am following along in it.
The rent credits won’t effect you if they back down. The rent credits only apply to the purchase price if they excersise the option, if they don’t excersise the option they lose the credits.
Oh okay. Is that specifically stated in your contracts? Otherwise I would think people would assume money they are putting into a house as principle would be theirs if they didnt exercise.
b) Seller/Landlord agrees that upon exercise of option to purchase, Buyer/Tenant shall be credited with $_________ from each monthly rental payment of $______ and applied to the purchase price.
Lease with option to purchase. I’d highly suggest picking up Michael Carbonare’s Naked Investor manual. Best $97 you’ll ever spend. He sends you a bunch of editable forms and documents (including the one I quoted that section above from) as part of your purchase.
Ill check that out! Ive been looking for a good course that actually has nuts and bolts and not just “heres how you do it” in investor jargon and whatnot. Too bad they don’t have an electronic version, but oh well.
So a subject to actually contains a lease purchase on the selling side. I didnt know that. I dont know why I didnt realize that though. I was wondering though why Wendy kept calling “in my mind” some subject to parts an option.
I heard some people say not to do Sub2’s where a state agency is involved, but not sure about HUD, though. The reasoning was that they “check up” on those people from time to time to make sure they still own the home.
Well, it really looks like something I need, documents and forms that are ready to go, so I picked it up. I’m excited if this is as nuts and bolts as it says it is.
I have another question. Is there an actual closing when you get the deed subject to? Or do you just get the contract, then the deed, get them recorded and thats it?