newbie needs exit strategy for duped deal

General Real Estate Investing
1

Greetings,

I am a newbie and I wanted to see if anyone had any suggestions on how to get out of the deal I made. My loan is with New Century.

Last year I purchased a house through a supposed “mentor” for 198k with a Section 8 tenant. I get $700 total, and the mortgage difference is $1,100. I need to sell it because I can’t afford the mortgage. The 36k I got back I ued to pay the mortgage. No repairs have been done to the 1950’s house.

The appraisal was grossly inflated. It shoudl have been for 165k.

The tenant wants her boyfriend to buy it. He can possibly qualify for 95k-100k.

Now the market in the area has mostly foreclosures selling at 85k-95k. Some are for sale @ 145k.

I thought of a lease purchase but @ what price and how much down? At this point I can’t afford to pay 98k out right to get rid of it.

2

So, you were FORCED to take out the loan?

3

Why did you take on a rental when the rents were $1100 less than the mortgage?!?!?!?

4

Sorry to hear of this dilema. If you try to do a lease purchase, try to get $5000 down and hopefully a rent closer to $1000/month. The purchase price should be whatever you can get.

Unfortunately it sounds like you trusted someone who ended up selling a bad deal. Hopefully you can minimize your losses, but it’s a tough one.

5

WOW! And I though people were trying to sell me a raw deal a few times. My advise to you is Take a deep breath, call an attorney and call the seller “mentor” and explain to him that if he does not buy the property back willingly he may be forced to buy it back after he gets out of the cross bar motel. May not work but its worth a try.

6

Thank you for all of your comments.

No, I was not forced to get the loan. I did not intend to play the victim. I am very clear of my role/responsibility in this situation. I read information on http://ml-implode.com/ that referenced victims of sub prime loans and used this language to convey that I had a mortgage with New Century.

It was a part of a “system” to get money to pay the mortgage and invest in hard money deals. Once I saw the direction it was going I refused to go forward with the hard money deal. I just said the mortgage with the 36k I got back.

That money is gone now. With the fall of the sub prime market, the “mentor” is almost out of business and owes me money. He told me he can’t buy it back.

I was told the Section 8 and the money from closing will cover the mortgage. Then when I did the hard money deals it would provide the cash flow.

7

tessvis,

This is a self-inflicted wound. You are the only one to blame for the mess you are in. In reality, you probably will not get out of this situation. If you can’t afford to pay the mortgage, the bank will foreclose on it. Game over!

Mike

8

Fall behind the 1 payment and then look for someone who can do a short sale. Of course it may take months to get done and even possible a short sale will fail. Find someone who knows there stuff. Better to have a couple mortgage lates, than a foreclosure. Then wait about 1yr, work on getting your lates removed and then get back into the game when you feel your ready…

BTW…sounds like you bought a condo conversion…

9

Every new guy on this forum should read this…

I’m willing to bet that at least 2 or 3 times during this purchase that your gut told you “DON’T DO IT.” Here’s a life lesson…

When your gut say’s NO… FOLLOW IT! Without exception, whenever I have gone against my gut feeling I live to regret it, therefore…I don’t!

Sometimes in this business people get ahead of themselves. Let’s face it, there is no way you should have been involved in a deal this complicated just starting out.

I give everyone the same advice… New to the business??? Good, make sure of one thing…Your first property needs to be an out of the park HOME RUN as far as purchase price goes. Think about it, your new to a business, you’re GOING to screw up, if you leave enough padding there you will still make money AND learn where your mistakes were made.

PATIENCE is the toughest part of real estate investing. We all love the stories about people who started 3 years ago, quit their jobs and are living on their positive cash flow. FORGET that! Real estate by it’s very nature is a slow way to create wealth. The upside of that is, if purchased at a steep enough discount, it is very likely that you WILL create that wealth.

You learned some great lessons here…

Never have ANY appraisal done by the guy putting the deal together.

From the sounds of it you probably did about 5 minutes research on this deal, otherwise you would have seen the inflated appraisal, also you mention the foreclosure rate in that area. Hello, any bells go off there??
If most of the houses are in foreclosure THAT MARKET SUCKS! Doesn’t mean you can’t make money, but you need to buy houses in that market at HUGE discounts.

Mentors are WAY over rated. Most of the guy’s I’ve met who claimed to be mentors were losers who couldn’t put deals together alone. (sound familiar?)

A real mentor will not want to be part of YOUR deal. I help people out all the time. If you want to label that as mentoring fine, then most of the membership here are mentors, but I don’t get involved financially with THEIR deal. Give them advice, make sure their asking the right questions, checking the things out that can hurt, but take money from some new guy who just wants advice? No.
I had a great mentor, he wasn’t a mentor by his definition, we used to get together for coffee when I had questions, mostly I’d listen to his tales of how he built a multimilion dollar real state empire. He built me up, gave me confidence. One of my favorite quotes of his was…

For Chripes sakes kid, I got a 4th grade education, if I can do this much, think about how far YOU can go!

Great guy! Never would even let me pay for the COFFEE! That’s a mentor.

10

Why didn’t you go through with the hard money lending part? You’d need a return of 3%/mo on $36k to make $1,100/mo. That’d just break even on your mortgage payment. That doesn’t even include operating expenses. That seems a bit far fetched. Your mentor sounds like a predator.

Did you get the $36k back at closing of your purchase loan? You should check and see if that is fraud.

11

What you don’t want to do is pull money out of credit cards, refinance vehicals, and borrow from family. Then lose the property anyways and have a bunch of other debt crushing you. You made a HUGE mistake, don’t compound that mistake with more mistakes.

What I would do:
You should get a part-time job to help pay for the negative cash flow. Then I would try my best to find an incredible deal or many incredible deals that can offset some of this negative cash flow. With the combination of the second job, and investing the right way, you can maybe avoid distroying yourself. Getting a part-time won’t kill you.

12

Is there anywhere to look up forclosure data by small areas?

In the city, every few blocks make up a different area, and things can really change quickly.

13

What happened to the 36K? Even if you closed in January of last year and took out $1100 per month you should still have over 16K in savings to help you work on that payment. You need to figure out a way to dump this albatross. How much longer do the current tenants have on their lease? Once that lease is up you need to raise the rents significantly. If the property is worth $145,000 you should be able to get way more than $700 per month. I feel bad for you I really do because this is not going to end pretty.

14

The same thing that happens everytime an investor pulls money out of a property. It just gets spent on life’s expenses.

t,

You may lose the property to the bank. But your investing days will be limited if you allow a foreclosure to happen.

  1. Get a 2nd job to pay for the immediate neg. cash flow.
  2. Learn how to invest correctly (study this site).
  3. Then invest the right way and you will eventually be able to quit that 2nd job.

If you give up, then it is Game Over. Figure out a way to pay for this neg. cash flow, but if there is no way then let it go. Don’t charge the mortgage pmts on your credit cards. Either find a way to pay the mortgage (job), or let it go.

15

Im not going to kick a person while he’s down like some of these other guys. Im a firm believer of accepting responsiblity and then creating a solution. First, you will have to get a part-time job to pay the difference in the mortgage. Your next step is most likey do a lease option with a significant down payment and the raised monthly rent should help out. Why a lease option - this is just to buy time to maybe wholesale and bird dog deals to raise the difference of your mortgage and FMV. This is a hard one, best of luck.

16

You are in a real bind. You have a house that is way over-leveraged, and you’re not going to get out through appreciation over time. The rent will not come even close to covering the mortgage any time soon.

I think it would be really admirable of you to put $1,100 per month into this deal out of your own pocket each month, but I also think the reality is that you’re going to get tired of doing that fairly soon. If there were even a realistic chance that you could get out whole in the next few years, maybe you’d do that, but I think the reality is that you’re going to be paying that $1,1000 per month (plus all the other expenses that go along with owning rental property) for a very long time.

Have you called the lender yet? Explain to them exactly what happened. Tell them that you get a $700 rent check each month (which I assume you’re applying to your payment each month, even if it’s only a partial), but that your payment is $1,800. Tell them that you’re trying to live up to your obligation, but that you need their help in figuring this out. They have every reason to work with you, but you need to call them first and be proactive about it.

I will say this, however. If it looks like you’re going to lose the property to foreclosure, don’t put any more of your own money into the loan. There’s no sense putting thousands of dollars into a house that you’re going to lose despite your efforts.

If you really wanted to, you might be able to find someone to go after to recoup some of your loss, but the reality is that you signed all of the paperwork, and you knew that you were overfinancing a house. I know that $36K check was very tempting, though. It sure looked like free money at the time.