Will This Deal Work?

General Real Estate Investing
1

I’m new to REI and am looking at a couple of different angles. I’m working with a friend partner so we can find a couple of deals to get our feet wet. He has proposed the following:

Distressed homeowner is having problems paying mortgage on time. It’s pretty much up to date but has been paying late, he needs help and has asked for help. He really wants to stay in the home.

Single Family Home conservative value $220,000.-$230,000.
Mortgage balance about $110,000
Equity in the home about $110,000.

He has had investors who wanted to assume his mortgage and have him move out. Basically giving him nothing but moving money.

My partner wants to have the title signed over to us. Refinance the home for the $220,000 figure. Pull out the equity for our expenses (and profit).

We would allow the homeowner to live in the home for 12 months rent free to help him get back on his feet. No charge to him what so ever. We would then make all mortgage, tax and insurance payments for the year. At the end of the year the previous homeowner has the option to simply move out no strings attached and leave us to sell the house. Or he can get a new loan and regain title to the home. At which point we walk away with him being able to remain in the home albeit at a higher mortgage amount.

We are working with an attorney who says this will work. I would like to hear what others think about it.

Thanks, Larry

2

A better way to do it would be to use hard money to purchase the house, you would then own it free and clear (sort of). THEN you would turn around and cash-out on it for the appraised value.

3

Is your atty an expert in real estate law.? You need to be careful as buying the property and then give an option back to the seller can be considered a form of fianancing/lending. this deal woudl be illegal in the state of Calif if that where the prop. was located. I do not know the laws for IL.

also, you dreamin’ if you think this guy will pack up and move out in a year and/or afford an even larger loan if he is struggling now. he very easily could turn around and sue and win to get his property back claiming you defrauded him out of his property.

I would recommend to spend some time over at www.foreclosureforum.com and read some of the old post that will give a lot of good info on how to handle preforeclosures like this.

4

Or you could cut the guy a break and tell him to refi it for $110k and cut his payment in half so he doesn’t end up homeless…then move on to another deal where someone has no other way out. I’d personally feel guilty about taking all of his equity even if I was giving him a free place to stay for a year. But that’s all a matter of opinion.