Hello all,
I am new to investing and have chosen to start by getting into foreclosures. I will offer the distressed home owner between $5000 and $10,000 more than what they owe to walk away without the blemish on their credit. Then I will find a re-haber or rental buyer to purchase it from me for $3000 to $5000 more than I paid as long as the margin is good enough for them to either make a profit or be able to rent it and get positive cash flow out of the deal. I make it sound simple when I know it won’t be. I’m in no hurry though and can keep looking until the right deal comes along. I am also learning about the “short sale” so I can try to adjust the price with the lender to make the deal work. I talk a big talk now, but know I am not experienced yet. Any advice would be great.
I’m sure many of you know, but here is a hypathetical deal as I understand it. I find a home with an ARV of $180,000. The distressed home owner owes $125,000. I offer them $132,000 and lets say they take it. I then find a buyer at $137,000 and we all meet at the closing table. I put a minimal deposit with contract on the home to fortify my intrest in the property using (and/or assigns) and sell my intrest to the re-haber/landlord. Deal goes through and I walk out with my assignment fee of $5000. The home owner gets $7000. The re-haber/landlord has to put $10,000 in to sell at top dollar or rent it out - 2 points or 2% due to a slow market so that’s a potential profit for him of $29,400 if it sold for $175,600 which is 2% of $180,000. I’m not sure if that works for the landlord? There is always the chance that it would sell for the full $180K, but I want to plan for the worst in every deal so I can sell it easier. I understand the landlord bases his rentals on the .02 formula, but I still don’t get that one yet. “Newbee”
Like I said, sounds good to me on paper. next step is to make it happen. Thanks for reading this. I’ll be sure to post my deals as they happen. Sorry so long…
Congrtulations on getting started.
You can not just assume that every rental property will rent for 2% of its value each month. You have to look at each market and property differently and know what properties are renting for.
I don’t know of many $180,000 houses that rent for $3,600 per month.
Also, the cost of the rehab can vary greatly depending on the exit strategy. It is unlikely that someone will put the same effort and expense into a rental property as they would a rental. A $10,000 rehab to sell a house might very well be a $3,000 spruce-up as a rental property.
In addition, if you’re doing pre-foreclosures, you may not have the luxury of waiting for your double-closing. How much time will you typically have between working with the homeowner and the auction date? Where I live, you have a few weeks, assuming that you’re working off the published foreclosure notices.
If you don’t have that much time, you’re going to need to pay the reinstatement amount to the lender after you get the deed to the property (which you get only after doing a title search to ensure that the deed if even worth getting). Then you are probably sitting on the house “subejct to” the existing financing until you exit the property.
Of course, if you have an investor ready to step in right away, you can just assign the contract to the investor and let him/her deal with all of that. Your job would be to just put the deal together and let the investor pay the reinstatement amount and get the deed to the property.
Good info, I’ll clear up a couple of points though. I know it’s fictional at this point, but the $3600 wasn’t a monthly rent. It was 2% off the arv of the propety due to a slow down in sales. My sister-in-law (Keller Williams broker) said in Colorado, people are having to reduce anywhere from 1-3% to sell right now if they don’t have time to wait. I have a man that called in today off an add. he doesn’t speak hardly any english so my wife will have to translate. I’ll let you know how it goes this weekend with him. It begins… ;D