Hello all,
My location is in Northern California. I found an owner of a condo that wants to do a subject-to deal. Here are the stats:
Mortgage amount: $86,000
Property value: $60K - $70K
Asking price: $100K ($86K mortgage principal + $14K walk-away cash)
Condo property is currently leased to a tenant on a month-to-month basis for about $1,100 per month. That amount covers everything including HOA dues ($300+ /month), mortgage payment (P/I), water/garbage. Property taxes are not covered. So this property seems to be breaking even each month.
I told seller that the best I can do is a straight subject-to without the walk-away cash. In other words, I would purchase the property in a subject-to deal for the mortgage amount or $86K. No cash out of my pocket.
The reason I am even considering this deal in the first place is because I won’t be able to qualify for financing so I’m basically paying a $10K premium to get free financing on the condo. The market probably won’t recover for a year so I’ll be on the hook for the monthly payments for at least a year. But it is leased out at this moment so I could possibly do a lease-option later down the road when the market recovers. Please advise.
Dude, this isn’t a deal. Not even close. From what I can see, there is absolutely no room to make a profit. Actually if you took this on via subject to deal, you’d be in the hole on the monthly, because the tenant’s payment doesn’t even cover your taxes. So you are wrong, it isn’t that it doesn’t seem to break even, it DOESN’T break even! Run away from this one. Further, the value of the property vs the mortgage outstanding leaves this property over-emcumbered. But for argument’s sake, lets say the outstanding + value amounts were the same. Whatever exit you use will require you to assess the mortgage penalty, which in itself will put you in the red. So many sellers will call and beg you to take their house. What you have to do is work the numbers. You should make money entering the deal. During the deal. And after the deal. If not, forget it.
chunkoftheearth,
Thanks for the reality check. Your feedback is very much appreciated. I think the overall problem is that the housing market is down in the area I’m in and almost nobody has any equity left in their properties. Whoever has equity is either staying put or selling the house through the regular process (eg. RE agents, etc.).
I think the trick is to find the sellers who have equity in their homes AND who are desperate to get out of their house ASAP without going through the regular process. In this down market, there are plenty of desperate people but very few of them have equity.
I think I will take your advice and walk away from this deal.
Not a deal
If it weren’t a condo, unless condo are the primary market, maybe and only if you can walk in without cost and get the seller to perform on the mortgage for a while… And then only if you’re a passive income earner…
Too many deals to do to make a crappy one work.
Happy hunting
Michael