I am new to REI, and thankful that I found this sight. I have been in sales for years and am currently working as a mortgage broker. I see that there is potential for big bucks in flipping L/Os and would like to focus on that to start off.
Assuming that I find a “motovated seller,” and they just want out. Lets say that they have 30k in equity, and are 5k behind. They are willing to do an option with me to save their credit and to get collectors off their back. Now should I come out of pocket right away with the 5k to bring the mortgage to current? Lets say I have a potential investor lined up… I tell them I have a property with twenty five thousand in equity that I will sell my exclusive option to for say 10k. Is that how it works, and how realistic am I being with these numbers.
To fill you in on my current situation a bit more… I have a limited budget to start say in the 10k area with fair credit rating. What I do have is a lot of ambition and a strong sales and closing ability. I am just trying to talk it out here, I want in. Any imput would be most helpful.
thanks again,
Rocketrider, its Successors and/or Assigns
there are many ways to do pre-foreclosures, but the way you propose has one major problem. You plunk down $5k and get the owners bacon out of the fire and you get a piece of paper with a contract. (not a great idea). You want the TITLE. Otherwise, you got no leverage and once the heat is off the owner he will pretend like he has never met you. Sure you can sue them to enforce the purchase option, but that more time and money and they may go BK on you. You want to buy out their equity at some rate (say 50% discount) and take title to the property subject to the exist lien(s). On most cases you want to send them packing and then re-sell or rent it.
You may want to check out www.foreclosureforum.com as use their search feature on the message board. Tons of great info there that should answer your questions.
when you say get the deed. Does that mean I have to pay the prop off? Or, can I just do a subject 2 and then once all the paperwork is signed and recorded then I catch up their payments. assuming that their current mtg co will reinstate the loan?
I am just trying to figure out how to get rolling with as little cash as possible. I figure I may need what I have to make some payments and catch up the mtg while I look for a buyer. Also for marketing. I have about 10k to spend and I want to make cash quickly. Am I totally wrong for trying to get a distressed prop to start?
You did not provide enough info to determine that. For instance $5K behind may be 2 mortgage payments in NJ or CA, but it could be 10 or 12 in Binghamton NY. Has there been NOD (Notice of Defaults) filed against the seller? How close to foreclosure are they?. Perhaps the seller can call the bank and tell them he came into a windfall and make back payments with your cash and the promise that payments will be early from then on to keep the loan in place. If this is so, I’d just do the subject 2 thing and go. Otherwise you may need to do the pre-foreclosure route and get authorization to deal with the bank and do a short sale (but then you will need cash or immediate loan).
so what you are saying is that if the mtg co is willing to reinstate the loan… in whatever stage it may be in I need to first have my docs signed and recorded, THEN I need to catch up the past due payments while I try to find someone to buy my option 8)
I’m saying that if the motgage company will agree to reinstate the mortgage in writing to your seller upon receipt of all back payments, then do the sub to deal and get the deed, record it, send the cash to the mortgage company and your back on track. Be aware tho that the Lender will be eyeballing that account very carefully and may be looking for a reason to take it’s option to exercise the DOS clause. Then again, maybe not - Banks just want to get paid. hey are not in the business of owning and caring for property. I heard somewhere that for every foreclosure that the bank has-hurts them to the point of $700K in their investment leverage abilities. In any event I would exercise extreme caution with this one.
I would not do a L/O with anyone in financial trouble period. Like was said before you only have a contract not the property. What if bank forecloses on the original seller - Where does that leave you - More importantly, Where does it leave your tenant/Buyer. Wouldn’t do a L/O with that guy for all the money in the world. Well guess that ain’t true…lol but you get the idea.
If you want to dump and run - you will most likely need to pay cash and dump it to an investor quickly or get it under contract and asssign it.
L/O’s and sub to’s are not quick Cash Turn-over deals. They are methods where you collect cash up front, some in the middle for cash flow, and a good chunk on the back-end. Remember, in the typical L/O or Sub to deal you are getting buyers much faster than an agent can because you are giving them something that they can not get ( a home with a down payment while they have an Iffy credit situation). The L/O and Sub to allows the buyers time to get in the position to get financing to finish the deal(a year or two sometimes longer). Of course you could get lucky and just have someone who loves the house just write out a check, but I wouldn’t bank on that.
Is there anyway to maxize on a situation like this with out buying the house myself?
From my understanding a Real Estate Option grants me the irrevocable right to purchase the property.
If I choose not to place the property under a lease option to a new buyer and instead look for someone to buy the property for well under market value, still making myself a quick profit, cant I just sale my option to the new buyer with a new contract?
Sure…you can purchase an option on the property along with a purchase contract for x $'s. Make them assignable.
Find a buyer sell him the option. At closing Bank gets paid off, you make some cash, the buyer gets the house. The problem may be that time is running out.
It’s difficult to work out a deal with play numbers as made up numbers always appear rosy on paper. However, being as one that can poke holes through about anything, let’s look at your “deal.”
First, you have to know about real equity and perceived equity. In your line of work, this should be clear. Perceived equity is simply taking the FMV (or worse, PERCEIVED FMV) and subtracting the balance owed. Real equity is taking the true FMV and subtracting the balance owed PLUS the costs associated with buying/selling/rehabbing the property. You have to find the REAL equity before you can determine whether an investor would buy this and what he would pay you to get it.
Second, you need ALL of the details of a deal. Simply saying “there’s $30K equity” isn’t enough. On a $100K property, it’s good, but you won’t get $10K wholesaling it. On a $300K property, $30K in “equity” won’t even pay the closing costs to sell it, but on a $50k property, you’ve hit a goldmine.