I am new at this as I a have only done 2 deals thus far, and they have been through a sherrif sale and a REO. So they were not too complicated.
Today I recieved a call from one of my lead letters from a man who has hit a rough patch and is trying to work through it. He does not want to do a short sale but the house has been listed to go to auction twice now but he has been able to hold that off due to signing forebearance agreements. The house is currently listed at 349k but the current mortgage is 250k with another 20k in penalities. My partner and I are originally custom home builders but with market softening I have come to look for other avenues to keep my subs working. Therefore I can get the work done cheaply. I believe I can put an addition on the property and redo the interior for around 100k (just to be safe) and it will re-list in the upper 400’s to lower 500’s depending on the market and when the deal gets done. So then my question is what should I do about the extra 20k in penalities. Obviously I want the bank to eat it but what do I need to do to make that happen? Any insight would be greatly appreciated.
The second question is the man has taken a job in Cleveland and eventually will want to move his wife and son there. His son is a senior at a local high school so he asked if I would be willing to lease the home back to him until the end of the school year? I really don’t have a problem with that if there is a way to keep from tying up 250-270k of my money for the next couple of months. Any ideas from the Veterans out there? I should mention that I do have the availability of paying cash for the property. Any help would be greatly appreciated.
Just because it is listed for $349K doesn’t mean it has equity. Get real comps done and determine what the property will really sell for. If the homeowner has had it listed and no deals yet probably means he’s asking more than what the market will bear. If the comps come back lower than the loan balance plus penalties, then have the realtor package a short sale. Make an offer at $.50 - $.60 on the dollar.
If the listing realtor doesn’t know how to do a short sale, then tell the homeowner to switch to an agent that can.
Deal Hunter,
Thanks for the input. I have done some research on the street and neighborhood. A majority of the homes on the street have been purchased in the 250-300k range and then have had additions added on to them. They have been marketed and sold anywhere from 500k-1M all on the same street within the last 5 years. This is why I feel there is a light at the end of the tunnel. My concern is that with such a large range in house values it leads me to believe that the street is extremely volatile. Any suggestions on how to hedge the volatility?
You can hedge the volatility by ignoring all the sales numbers from the last 5 years and using only the numbers from the last 30-45 days to determine the return on your target property. Five years ago and up until August of 2007, buyers could get home loans for primary home and investment purchases fairly easily. That is no longer the case, so the numbers no longer apply.
Get a comprehensive comparable market analysis from a local realtor. Look at the list prices and days on market versus sold listings in the last 30-45 days. For listings that expired, how long were they listed and how often if at all did the seller lower the asking price. How many homes in the area are foreclosed? What is the starting price for the foreclosed homes vs. the listing price of the resale homes? If any foreclosed homes have been listed for over 30 days, how often is the bank lowering the selling price?
Be prepared to have carrying costs for the property if it is “unflippable” for the next 1-2 years. Get comps on rent rates in the area (closed listings) so you know exactly how much rent is actually being paid to landlords for that type of house.