This one could go in a couple different areas, but I thought this was the best fit.
I’ve come aross a property that the owner needs out of (Divorce, credit issues, maintenance issues) and wonder if this is an opportunity.
Home is listed for 123k in an area where houses are anywhere from 140 to 160k. I’ve been told the guy would let it go for 115k which I would take it to mean he would go lower. I looked around the outside of it and from 1st look it needs a new roof, garage door, possibly siding and general clean up. I’m guessing it would need new carpet and some updating inside. All totaled maybe 10-15k investment to fix it up. So now you’re into it for 130-135k.
How would any of you folks that have seen this before approach this?
Thanks.
Naperbill
Sorry…I posted here because if I were to take this deal it’s a flip opportunity only for me.
Naperbill
Hows it goin, good luck to you but i don’t see any short sale happening here.
It is my understanding that short sales really only work in situations where the homeowner is facing foreclosure in which case the bank would rather accept a short payoff rather than deal with the foreclosure process and eventual auction of the property for perhaps pennies on the dollar. If the owner is not heading in that direction the bank probably wouldn’t even consider discounting the mortage. If he is in pre-foreclosure however you might be able to work something out.
I would suggest knowing how much he owes on the house. If he has a lot of equity you can always ask that he sell for the balance owed on the mortage.
Personally, i think you would do better buying it subject-to and then selling it on a 2 year lease/option for around 160k or so. This would solve the problem of the seller and make you some money in return.
I think foreclosure is headed his way before long and I believe his equity isn’t much to speak of. I thought if he owed 100k offer him 105 to 110 to help get him out of the house and put a few thousand $$ in his pocket. His wife screwed him with a ton of credit card debt then walked out. If he’s divorced I think nothing would make him happier then getting some cash in his pocket.
I’m not real clear on subject to, but would that mean more or less leasing/renting it to someone for a few hundred bucks over my monthly expenses and then after 2 years they have the option to buy it at 160?
If I’m off base on this, feel free to shoot me an email that might explain it. thanks
naperbill
well if you sell it subject-to and leas/option it you gotta get upfront NON-REFUNDABLE option consideration. You wanna aim for rent-to-own buyers not just renters. Usually only serious buyers are going to put down the 3-5% that you’d ask for. When they’re ready to buy you subtract that from the purchase price (like a down payment) if they dont buy you can get another buyer or if they want to continue to stay then get another option agrreemnt and more money.
$ So you’d get paid the money up front.
$ The spread between your and their payments monthly
$ Backend profit if they buy within the timeframe (you buy for 120 they option at 137 for example)
Hope that helps
So if I’m reading this right.
If we set FMV at 150 right now and I charge them 5% as a down payment, I get $7500 now.
If my total monthly costs are $900 and I charge $1100, I’ll put another 2400 in my pocket over 2 years.
Lastly, if I sell it to them after 2 years at 144,500 (137,000 after taking away their 7,500 down payment), I put another 17k in my pocket if I’m able to pick it up for 120k
Total income of $26,900 or a 22.4% return on my original investment of 120,000 which is initially coming out of a heloc and then transferring to long term financing to free up my heloc again to do more properties like this.
Am I on the right track?
Thanks for the help
naperbill
Yeah pretty much, a lot better than renting huh? A lot of people also give rent credit as an incentitive. So for example if they pay on time they can get 200 of their lease money put towards the purchase price of the home. So after 2 years they could have a total of 9,900 (7,500 option consideration + 2400 monthly costs). If they dont buy after two years you get to keep all the money and lease option to another tenant (collecting more money upfront). Also most people base the option price on what they believe the house would be worth in 2 years not just based on what you paid for it. Hope this helps.
Good Luck &
God bless
Oh and one other thing. If you buy the house subject-to you dont actually need a new loan since you’re taking over his old one. But hey if you do buy it flat out you could lease it the same way or sell it outright.
Let us know how it turns out, hopefully we’ll get to read another success story 8)