What would you do?

General Real Estate Investing
1

Seller calls, says they just want out of the burden. They say the house has been newly assessed and its now worth less than they owe. I know assessments are pretty meaningless, but I listen. She says they have refinanced multiple times and now the payment is right around 1k and they cant do it anymore. The property is worth roughly 50k. So I give her a couple of options, they agree to just deed the property to me, the problem is the payments are 1k, and theres no way itll rent for that, let alone enough for a spread. I know there are ways to make money on houses with no equity, but right now Im drawing a blank. Is there anything you would do given these circumstances that might make this work? I can see market rent being right around $700 a month and my first thought was to just have them cover the $300 difference since its better than the 1k payments, then selling it for say $800 on a LO at 60k or so.

Any input or ideas are appreciated. Meeting with them Thursday evening to button things up. Thanks

2

The payment is a deal killer, if the rents are only $700/mo.

You might find a buyer willing to give you say five thousand for the rights to own this house with payments that are astronomical, but that means the house was ‘really’ attractive and worth paying over retail on both price and terms.

I’m doubtful. Just because you ‘can’ buy a property sub2, doesn’t mean you should.

  1. You could get an option… Advertise the house, with non-qualifying financing and something around 10% down (without buying down the principle balance, and see what kind of responses you get, before closing on the deal.

This means getting a 30-60 days option to buy, conditioned upon finding a suitable buyer willing to pay $1000/mo on a house worth $50k, that he’s paying $65k for, including his $5k to get in.

  1. This payment will get old for the buyer, and he’s likely to bail after a short time …or start paying ‘really’ late, until he defaults, and make YOU pay the mortgage personally.

At that point, you’ll have to find another sucker, I mean buyer to seller finance.

Meantime, this resembles a glorified lease/option deal in both price and payment terms. With only $5k invested, the buyer is bound to bail on the deal.

Especially after his credit is straightened out, and he starts seeing the bargains he can actually buy, without the monstrous payment.

That’s why more than 95% of L/O’s fail to close. The tenant/buyer finds a ‘real’ deal, and moves on it.

Now, if you’re successful selling this house on these terms, you’re gonna sell this house a couple times over …on similar terms each time.

The question is, is this upside, cheapo house worth babysitting for eight or nine years for a tiny profit? I would think not.

However, it might serve as a portfolio builder… or low-profit, testimonial deal.

Meantime, I would consider asking the seller to pay me to take this debt off their hands. After all, they kept borrowing against it, and they’ll either pay me, or they’ll pay the piper… I’m cheaper.

Another reason not to do this deal, is that you’ve got to understand how to take over and administrate the mortgage, know how control the deed and the loan legally, and make and receive payments on behalf of the original seller, and your future buyer …not to mention conform to the reporting now required by the Frank/Dodd crap law.

I don’t want to be negative, or a Debbie Downer, on your deal, but this is a one-off deal for you, that doesn’t represent a routine, much less much profit.

Not to mention that you’re gonna babysit this low-profit, portfolio-building deal for a long time, while learning exactly why it’s wiser and more profitable to buy deals that make financial and investment sense …from all angles, and not rely solely on the “because I can” method of justifying a sub2 deal.

Hope that helps. Not very encouraging I realize, but there’s TONS of better deals with JUST as motivated sellers out there. It’s a matter of looking under more rocks to find those gems.

That’s it for me.

3

Thanks for your input, I appreciate it and Ive read a lot of your other posts and take heed of them. That being said, I dont think it was being a debbie downer, I felt the same way about this as you describe, I just thought I would throw it out there and see if any seasoned investors might know of a way to make this work.

Quick question that ran through my mind when I was talking to this woman though and Id like to hear what you have to say about it. I read some time ago I believe that after some time of having the deed in your name you can “refinance” the property into your own name or something along those lines. Is that possible to do? And if so, I would assume this could bring the payment WAY down to a more normal level correct? Is taking something like this on worth it if you can do this and bleed a little along the way? Maybe collecting a 5k check from the seller to make up for it or something?

Im not super sold on this deal or anything and will most likely walk away, Im just curious. Btw, this is a really nice ranch on half an acre in a city just a couple square miles in size. Not that it matters lol

4

If you were buying this to live in, it might be worth buying, with the intention of refinancing. Otherwise, no.

You need to characterize the underlying loans. Are they private, institutional? Or what? Private loans are dangerous to take over. Anything can happen.

How long will it take to be able to refinance the house at 80%, or 90% of retail? That’s how long you’re gonna be bleeding on this deal.

In other words, if the house is upside down, how long will it be before it’s about 10% above water?

Forget the 100% refinancing offers you see, unless you’ve got super-duper credit, and/or a mortgage broker with a special deal available.

In practice, I am quite happy to take over a loan sub2, that represents 80% of retail value, and then looking to refinance. There are some lenders that don’t require seasoning on ownership, that will loan on very high LTV’s.

Do your homework first. Contact a mortgage broker and ask what kinds of refinancing schemes are available right now, or coming down the pike.

On the deal you’ve got? There’s just too much liability and too little profit.

Frankly, this is the perfect “mortgage assignment” scam candidate.

A seller is effectively upside down. An investor offers to find a buyer that will take over the seller’s astronomical payments.

The buyer doesn’t know how to find new financing. The seller doesn’t either.

The buyer starts paying late, and tears up the seller’s credit. It gets worse.

The buyer defaults. The seller’s credit become badly burned, and continues with the liability; with no idea how to get his house back without going to court, and spending GOBS of money and time trying to repossess his house (that he couldn’t afford to keep and maintain in the first place).

The deadbeat buyer squats for months without making another payment, because he CAN.

All while the investor walks away with thousands of the buyer’s dollars in “mortgage assignment” money, while leaving the seller (and the buyer) to twist in the wind.

Such a deal.

5

Right on Im pickin up what youre layin down. I did a little more research and figure it to be worth about 60k not 50k like the seller thought, but still I dont really see a deal, plus she mentioned getting behind, not in foreclosure, but close, so who knows how many arrears need brought current. Thanks for your insight Jav. Btw, where in Pa are? Im in Erie Pa.

6

I’m in SoCal. I don’t know where PA is? Is that a state?

7

Yes, sorry, Pennsylvania. Thought because of your handle you were as well.

8

I would like to know how on earth they could be making a $1,000 payment on a property worth $50k. A 30 year FHA loan at 4.5% with 3% down would have a loan amount of $184,300. A 15 year loan under the same terms would have a loan amount of $126,100. Something crazy is going on here. I think you need to do some more research on this.