The gentleman wants to give me his house Sub2. The value has dropped to around $60k and he owes just about $60k on the first mortgage and $15k on the second, for a total of $75k. The payments on the 1st are $750 (PITI), second $150, and in the area I can only get about $1100 rent, if lucky. He’s a payment or so behind on the $14k second. There are 20 years left on both of the mortgages.
So, I could make this work, make $200 each month on this very nice 3 bed 2 bath house (homes are cheap around here), and eventually pay it off. I’m not too concerned about value. If I sell on lease option I’ll make the price $75k anyway. But $200 isn’t a lot to make on a $900 outgoing payment. Risky IMO.
But, is there a way to buy the second mortgage from the bank at a discount? What price do they usually take for a $14k second that’s a month or two in default, if anything? After I buy the loan, since I’m going to have the title anyway, wouldn’t I just forgive myself?
Yeah, I know it’s a big risk for a small reward. The reason I’m really considering taking it on is because it’s really, REALLY hard to get into a house, whether sub2 or payments, for less than a few thousand. They usually require a good $6000 down and the payments are still up around $750 anyway. But I am kind of protecting myself a bit because a) the seller will pay a couple months on the big mortgage after I get it and b) I’ll be selling it on lease option and getting around $3000.
I don’t think this is necessarily high risk. It’s high maintenance, for no reward.
I mean, how many years until this house is worth $75+ again?
Are you prepared to extend the l/o for seven to ten years?
Is a $3K profit today worth baby-sitting this deal for this long?
Unless the 1st is in default, you will not be successful in getting the 2nd discounted. In the event that both the 1st and 2nd go into default, many 2nd deed holders will accept something above 10¢ on the dollar.
Profitable, no down, sub2 deals are not uncommon, if you know how to search for them.
Settling for this enormously low profit deal, because you believe there’s too few ‘no down’ deals to take advantage of, is a recipe for spinning your wheels on dud deals. This is a dud deal.
That all said, if you just don’t have any working capital… then maybe this is the deal you can squeeze a few dollars out of, and the time spent is just the cost of doing business with no money.
For giggles, let’s say you pocket $3K. You should immediately invest that money into a course on sub2 investing, so you can learn to find the actual no-down sub2 deals that push off $10-30K, instead of $3K. Just saying.
Thanks for the advice and info. I have studied every course you can think of about how to obtain houses and resell them for little money down. The fact is that I have spoken to SEVERAL folks with homes worth say, $50k and they owe around $70k. I tell them I’ll give them even $2000 for the deed (which of course you don’t want to spend) and they simply will not do it. A few months later–more recently a year later–I see the house has gone to foreclosure and someone like my buddy Bill will pick it up at auction for like $15,000 and sell it on installments to someone like me. Problem is they want like $5-7000 down.
I would LOVE to hand over $1000 for a sub2 deal but the thing is I’ve been unsuccessful (I only have 3 houses at this point). What I’m seeing is that people would rather suffer foreclosure than to have someone make a little money on their house. I’ve actually thought about paying someone to come to my area and talk to people for me to see how they do it. So far I haven’t met anyone around here with the knowledge I have doing anything similar to this; they just buy at the auctions, which would be a great strategy had I any money, which I don’t have much. Any ideas I’d be willing to listen! (I’ve tried David Finkel’s approach, Carton Sheets, John Burley, Ron Legrand materials and have tried to mimic their conversation style to little avail [note the economy is worse here than most places and a totally livable house can be bought any day of the week for $10k and of the gurus above even told me in front of the room at a seminar I attended: “I wouldn’t want to be investing there right now.” ]).
Back to the second loan…ahh, so if THAT’S in default they won’t sell it off? It doesn’t benefit them any to NOT sell it to me because if they foreclose and get the house they’ll have to make the payments on the first while they’re trying to sell it off. And, since it’s only worth $60k in a market where houses worth $60k are selling for $40k daily, I don’t see them benefitting in any way at all. Hmm. Too bad you can never talk to someone who’s not only in charge but logical–something that is very hard to come by!
No other ideas on this one except to let it die? $200 a month is, IMO, not bad. I would keep the house long term for at least 10 years. Even if I sell on LO I don’t have a sell-by date…or I’ll just do a straight rental (sometimes we have visiting physicians who would like a house like this because it’s in the “good” area). My goal is $3000/month in rental cashflow and I’m at $900 now, so an extra $200 on a 4th house would put a little gas in the confidence tank
If you’re trying to build a rental portfolio, I wonder if you wouldn’t be better served in your market to try and pick up another job and make some extra cash to be able to put down for a rental house. If your buddy Bill gets them at auction that cheap and you were going to buy several of them, he might give you better terms if he knew it would be a long term profitable relationship.
This could be a different path to where you want to go.
They serve to justify failing at finding and closing on profitable sub2 deals.
I mean, wow.
You want want to invest in a quality sub2 training, that will give you the tools to find, qualify and close on profitable sub2 deals.
The ones you mentioned are not focused on sub2. They don’t include the seller psychology to look for, the way to pitch an offer, so that you can show the seller just how little equity he has, and elegantly get the deeds without asking for them, and never cough up down payments of any kind. You can do this, but you need training.
Trying to “home depot” this thing will have you shoe-horning crappy deals into your portfolio.
BTW, just consider this regarding rentals:
50% of your rental income will go to expenses and overhead. Part of what’s left over goes to debt service. Anything left over, is your cash flow. Your cash flow gets taxed as regular income.
So, how much actual income do you think you’re gonna net with $200/mo on an over-priced house, no down, or not? Just asking.
OK, I’ve beat you up pretty hard here, but I think if you change your perspective, and get some actual training, you’ll be unstoppable.
Why do I think that? Because you’re willing to attempt to buy a turd deal; settle for a $3K profit; babysit the house until Moses comes back; and make no further money. That’s why.[/b]
All of the “gurus” say that you should never say, “you can’t do it here.” And there are so many courses I can read or seminars I can go to and it gets to a point where I just have to do it. So I don’t want to say, “This area is too bad. I give up.” I can see the light. Once I have a little more cashflow I’ll be able to afford to buy a house on payments once every 2-3 months (with like $3000 down). That’s a strategy that I’ve worked out that will work. The more cashflow the more I frequently I can buy another house.
But I’m interested in the seller psychology stuff you mentioned. I’ve learned some, but if you know more, I’d be happy to go get the course and start listening to it! I need something that will work with the “victim” and “sense of entitlement” mindsets that a lot have. I’ll go get the course immediately. If you don’t want to tell me in the open PM me. Thanks!
