Alright… I know that the conventional wisdom says “Don’t do a deal with no equity.”
However, I was wondering if this might be an extenuating circumstance-- as I don’t have a whole portfolio of these. (Actually… I have no portfolio!)
House is in Round Rock, near Louis Henna and Victoria Staion/Toyhaville.
3/2.5/2, 1600 sq. ft. PITI is $1100.
Here’s the extenuating circumstance The house is only 1 year old.
Owners seem to be open to selling Sub.2… and I think I can get them to pay the first couple of months. So, I’m thinking this might be a possible candidate for a tenant/buyer, if I can get $1250 a month?
I know it would fall into the “marginal deal” category… but for those of you who know the area… might this one be “do-able” since the house is so new?
I bought a couple of these when I first started and actually have done well with them.
When I even consider one today, it must meet the following criteria…
Low interest loan. I mean really low. Like the best there is around. The ones I consider today are 6% or lower.
Immaculate property. I don’t even want to have carpets cleaned. If I am going to have to call anyone to do anything, I pass.
Low enough payment to guarantee me cash flow. There has to be no question about what I can get in rent and that it will be higher than the payment.
I have to have at least a couple of buyers in mind for the property. I don’t want to have to worry about holding it for even a few weeks.
When you say “no equity”, is it really “low equity” or "over financed? There is a difference between buying a 100k house for 95k which is low/no equity and buying the 100k house for 110k which is over financed. I don’t do over financed.
You CAN make money with these but they are much riskier than others. You have to have the cash reserves to offset the risk. When cash flow is low on a high payment property remember that even one month of vacancy can eat up 6 months of profit. Two months of vacancy…well, you get the picture.
Don’t stay in the middle of this one. You didn’t mention the ARV or loan balance, but I assume if it’s a year old, it’s 100% or upside down.
It might be worthwhile to get it under contract and sell it owner finance or on a lease option and then assign your buyer back to the seller for part or all of the buyer’s upfront funds.
Like William said, even if you can get $1,250 per month, that’s only $150 per month gross spread, or $1,800 per year. You’ll never see a dime of that money due to repairs, vacancies, etc. and there’s no equity. Thus, there’s no reason to stay involved. :flush
In doing Subject To deals there is a pattern (done a few of them) that exists in finding where motivated sellers are and if there house is something that you want to pursue by purchasing it.
I know within minutes of hanging up the phone with a seller if the deal is worth doing or not. It has never been guess work with me, sold all my properties within a three week period after purchase. Not big on Lease Options but sell on Contract for Deed. Texas has had some changes in the law there conderning CFD’s, so should be taken into consideration when selling.
This is what can be found out about a property before you purchase it or after you get the address and hang up the phone. How long the holding time is before it will sell, how much the seller will accept for their equity, how much the house will sell for and even what the average age group of the neighborhood is or what the majority of them do for a living. This will help you market the property, as in my ads I match the personality of the house to the buyer.
There are three built in profit centers on a Subject To deal, the down payment, the monthly pack or adding to the existing interest rate a few points giving you a monthly passive income and the backside profit or adding an appreciation figure for a two year period, when my buyers are required to re-finance.
You have had advice from some real pro’s in the business in your post, however as I mentioned to Tim in an e-mail the other day great minds think alike :brow , but sometimes I tend to keep doing what has proven effective for me and my students even in Texas.
Bottom line if you know how to research and can put the round peg in the round hole, low equity deals are a snap. Remember the low dollar is only what you give the seller for their low equity not what you get for your high equity when you sell. :roll: