Most of the homes in my area are BADLY ‘upside down’ - owners financed too much and now that property values have dropped, they now owe MUCH MORE than the current market value of the property.
Is it possible to buy / acquire these properties before they go into foreclosure?
Even with ‘negative equity’ ?
Or, are these properties just not worth considering at all?
The only way that I, and I’d assume any other seasoned investor, would be interested in a negative equity home is through a shortsale, not a L2P or Sub2.
With those methods, you are just placing yourself in the seller’s situation. While that may make you look like a Knight in Shining to them, it will make your checkbook/savings plummet. Not a good thing.
In a down market you need to buy at even bigger discounts than normal.
Raj
So, there is no sort of deal, using any creative method, which can control or acquire upside down properties?
i have 6 properties that are upside down in equity and it gave me a huge tenant/buyer list. im working a loan modification to get these payments reduced to make them more marketable for sub2/lease to own
How does that attract tenant / buyers? I’m mean the payments must be more than they can get on other properties right now.
why not get the people upside down to pay some of the mortgage? something like you’ll pay them $1000 a month if they pay the remaining $400 a month on a $1400/month mortgage. so that you can get your profit, and they can get outta their home?
I whole heartedly agree with Roger. Find better deals it shouldn’t be to hard to improve on these. herbster
If you are new, or fairly new, at RE investing, then trying anything more “creative” than getting a shortsale on these properties is a recipe for disaster (yours). Even with enough experience under your belt to even entertain the thought of pursuing a deal (and I use the term lightly here) with negative equity, it’s a massive risk, with very little reward, from my opinion.
Raj
Of course it is possible to buy these properties as SubTo or Lease Purchase deals.
That said, you are asking the wrong question.
You should be asking whether these properties can be profitable acquisitions as SubTo or Lease Option deals. The answer is probably not.
ive attracted over 120 tenant/buyers with 3-5% and looking for a lease option just in the month of august. i had 7 properties under a non exclusive option at that time. i have 6 properties remaining and im constantly getting 5-10 tenant/buyer leads a day. im just lacking properties with good low payments. again take over sub2 a lenders approval for a loan modification.
my goal right now is to build more inventory of properties that are available for sub2/lease option and then see what matches up. this is how i build my tenant/buyers list.
how would you mitigate the tenant/buyer’s interest if the seller defaulted on their remaining $400 a month?
i see a different picture.
im currently testing the market on doing sub2/lease options on million dollar properties. i talked to a private lender/FSBO and he said it made perfect sense to do these. ive talked to a few FSBO’s ranging from 1M-3M and i told them id split the deal with them if im able to secure a tenant/buyer with 10-15% up front plus any positive cashflow im able to add on top of the triple net lease payments. i add a 5% premium on top of my full asking price offer im giving to the FSBO and id have to wait for it when the property is eventually disposed with new financing. also im entitled to 25% of any net future appreciation and 25% of any principal reduction (aka equity sharing). i tell the FSBO that this will be a long term hold for up to 11 years with the right to extend.
defcon,
You make some good observations. Based on the current investment market how has been the communication with the lenders with approaching them with Loan Modifications?
By the way what are you doing to get 5-10 Buyer leads per day?
doing the loan modification is just an entry tool and isnt my bread and butter. i just have a resource to refer my loan mods to and i get a cut out of it. when the loan mod is done, then i get to take over sub2 the new lower monthly payments and then structure a lease to own afterwards with my tenant/buyers.
at the moment with over 200 cases settled, we’re averaging 4.25% interest only for 5 years up to the life of the loan. this is how im mitigating the bad mortgages and high payments out there. it will either be at the homeowner’s expense or my partners expense or the tenant/buyers expense. either way it wont cost me anything to do these. my partners property was $4,400 and reduced down to $2,100. the lender is only taking a hit on the rate reduction and extending the term, while the principal loan balance stays put.
now im working on acquiring and controlling as many free properties as possible in this down market by taking over sub2 a loan mod, owner financing as the exit strategy and then unload them to the speculators waiting on the sideline to buy.
just advertising on craigslist and making offers to agents. networking with people also helps get the word out.
i dont have the cash nor credit to purchase REOs but im working on having other people purchase them at a discount for my tenant/buyers with cash and then do an equity share right afterwards using land trusts.
I’m in agreement with Roger. Your objective is to make a profit. If you have a tenant/buyer list handy, see if you can purchase the home via short sale, then put one of your T/B’s in there!
thats true if the original poster has good credit, down payment, full doc and can actually qualify for FHA or conventional financing. based on the title of this post, i dont think he has the credit to finance it so his next alternative is to take on creative financing via sub2/LP. his main problems are the high payments and negative equity which a loan modification would be “a” solution to counter the high payments. purchasing it outright via short sale or REO would be the best solution to counter both problems, but that’s not the case.
a credit partner may come into play to buy it at a discount or pass the deal to someone else that can take on it with no credit needed. again youll see that majority of investors will pass on deals with negative equity and high payments, and this is one my main criteria that im looking for because no one wants them. a free property is a free property to control and create profit centers out of them with none of my credit. owner financing is great.