Pre-foreclosure House Strategy??
I am very new at REI so i need help. We found a house that the owner lost his job and had to move back to his home town. The owner owes 183k, the home appraises at 197k, we offered 150k but the owner took it to the lender and they rejected it. Obviously we are headed in the wrong direction. We need a strategy please!!
Thanks
From my experience generally the maximum holding periods are 7 to 12 months before a lender is willing to take a short sale.
Lenders do not agree to short pay-offs to be generous. In negotiating the short pay-off, the lender needs to be convinced that it will come out better than to try to re-sell it on the open market.
Short sale procedures vary from lender to lender, but most require the following before approving a compromise sale
1. The lender must be convinced that the sales price under the proposed contract is equal to or higher than the amount for which the lender would be able to sell the property for. The lender will often confirm facts with their own sources, usually the RE agent that handles their REO sales
2. The lender must be convinced of profit or loss. Your numbers must make since.
Keep in mind you must sell yourself first and then sell the deal!
This is how I worked one of my short sale deals with Bank of America.
Subject property history:
1. They had this property on the market for 1 year with a realtor at a list price of $89,000 (Got this info by asking the bank and the realtor) The realtor fee was 5.5%
2. Their previous customers were in bankruptcy and tied up the property for 6monts without making payments their note was $79,487 at that time. (I did court research to find this info out and ordered a copy of their bankruptcy records) Cost me $15.00
3. The apprised value according to the bank was $102,800 from 2 years ago (They showed me a copy of this, because I asked)
4. They bought it back at the court house steps for $84,912
5. The market value was $87,900 base upon a certified market report that I purchased for $95.00
6. Repair cost to get this property up to market standards would run around $12,000
This is what I showed them:
1. Their property was over priced (This made me look like an expert as compared to their realtor)
2. I showed them details on repair cost that it would take just to get it to market value standards
3. I showed them their carrying cost for the 1 1/2 year that they have been holding this property. Interest lost on money they could have had loaned out and making money on at just 6% = $7,642.00, RE Taxes = $747.00, Insurance cost = $1,442.00, Utilities cost = $1,602.00. For a total in carrying cost of $11,433 (loss). I advised them that they would loose $635.00 every month for holding on to this property. Putting in good money after bad.
4. I advised them to date your loss is $96,345 and this does not even include your administrative cost.
5. Now let's add just $100.00 a month in administrative cost = $1,800.00 for a total loss of $98,145.00
6. Now if you sold your property today for $87,900 its real market value, you would have to add $12,000 for repairs to do this. For a total investment on your part of $99,900.00
7. Now let's add the realtor fee and closing cost of $6,593.00. Now you have $106,493.00 in this deal.
Now I advised them that I would take over the repairs of $12,000.00 and I handed them a cashier check for $45,708.49 with my letter of intent to purchase giving them 24hours to accept or offer is void. When I void an offer I do not go back, I walk away. Let's them know I mean business.
They got back to me the next day and accepted.
I know this sounds crazy, but it works. I like to use cashier checks "It gets their attention".
Now with all this information, the answer to your question is no. Their is no percentage to work with.
Welcome to REI and good luck. Keep postive.
Thanks, that was a great example. Another example of how somethign is worth only what someone is willing to pay for it.
Sounds like this method can work really well if you have some baseline capital to work with. being able to put up some money can snatch a good deal.
Were the numbers you threw out to the bank on taxes, insurance, etc. obtained as comps, or were they very specific from the tax records you bought?
Great to see that you are out there working on REI.
In dealing with your subject property, you first need to establish it's true market value by getting some comps "what like properties sell for". Your comps need to be if possible in same subdivision and on the same street if possible. If this fails I would suggest calling on properties for sale in the subject area to see what they are listing for or search realtor.com. This will give you a general ideal of at least what they are listing for.
Also the following net sites may help in working the numbers game www.domania.com, www.homeradar.com, or homeadvisor.msn.com.
This is from my personal experience: I never buy based up apprised value, but market values "what the consumer is willing to pay".
In looking at this deal you have an apprised value of 197k with a debt of 92% of apprised value. Your offer was 76% of apprised value. Your offer was asking the lender to take a hit of 33k (to loose 33k). Not knowing your area, it seems that at best your subject property would have a top end market value of 179.9k. Also in looking at the demographics of the Austin area where I assume your subject property is located. The average sale price for homes 1999 average sale price was 128.6k, in 2000 was 142.8k and in 2001 was 152k. In looking at the 2001 market a declined of 1% accrued in the Austin area. The appreciation from 2000 to 2001 was 9.3% and 1999 to 2000 was 9%. Taking all this in to account it would take several years for you to come out strong with this investment.
In a pre-foreclosure type deal you would have to negotiate with the lender to take a short sale (ask the lender to take less than owed). A short sell is difficult to negotiate for a well-seasoned investor. If this would have been an REO (Lender Owned or Corporate owned). A deal may have been made.
I would recommend that you first research your subject property at the courthouse, determine its market value, determine your customer's motivation and most importantly only work deals that the numbers work (profit).
Good effort on your part, I would suggest avoid the short sale process until you are able to hone your negation skills, There seems to be some great books on this at the TCI web page.
Keep in mind that with every no; you are just getting closer to the yes. REI is a numbers game. Stay in the game and you will get a home run.
How much of a "hit" will the banks take when foreclosing on a property?
I would imagine that banks are in business to move money, not hold onto real estate, but is there a % of the home value at which the bank won't consider selling short?
From my experience generally the maximum holding periods are 7 to 12 months before a lender is willing to take a short sale.
Lenders do not agree to short pay-offs to be generous. In negotiating the short pay-off, the lender needs to be convinced that it will come out better than to try to re-sell it on the open market.
Short sale procedures vary from lender to lender, but most require the following before approving a compromise sale
1. The lender must be convinced that the sales price under the proposed contract is equal to or higher than the amount for which the lender would be able to sell the property for. The lender will often confirm facts with their own sources, usually the RE agent that handles their REO sales
2. The lender must be convinced of profit or loss. Your numbers must make since.
Keep in mind you must sell yourself first and then sell the deal!
This is how I worked one of my short sale deals with Bank of America.
Subject property history:
1. They had this property on the market for 1 year with a realtor at a list price of $89,000 (Got this info by asking the bank and the realtor) The realtor fee was 5.5%
2. Their previous customers were in bankruptcy and tied up the property for 6monts without making payments their note was $79,487 at that time. (I did court research to find this info out and ordered a copy of their bankruptcy records) Cost me $15.00
3. The apprised value according to the bank was $102,800 from 2 years ago (They showed me a copy of this, because I asked)
4. They bought it back at the court house steps for $84,912
5. The market value was $87,900 base upon a certified market report that I purchased for $95.00
6. Repair cost to get this property up to market standards would run around $12,000
This is what I showed them:
1. Their property was over priced (This made me look like an expert as compared to their realtor)
2. I showed them details on repair cost that it would take just to get it to market value standards
3. I showed them their carrying cost for the 1 1/2 year that they have been holding this property. Interest lost on money they could have had loaned out and making money on at just 6% = $7,642.00, RE Taxes = $747.00, Insurance cost = $1,442.00, Utilities cost = $1,602.00. For a total in carrying cost of $11,433 (loss). I advised them that they would loose $635.00 every month for holding on to this property. Putting in good money after bad.
4. I advised them to date your loss is $96,345 and this does not even include your administrative cost.
5. Now let's add just $100.00 a month in administrative cost = $1,800.00 for a total loss of $98,145.00
6. Now if you sold your property today for $87,900 its real market value, you would have to add $12,000 for repairs to do this. For a total investment on your part of $99,900.00
7. Now let's add the realtor fee and closing cost of $6,593.00. Now you have $106,493.00 in this deal.
Now I advised them that I would take over the repairs of $12,000.00 and I handed them a cashier check for $45,708.49 with my letter of intent to purchase giving them 24hours to accept or offer is void. When I void an offer I do not go back, I walk away. Let's them know I mean business.
They got back to me the next day and accepted.
I know this sounds crazy, but it works. I like to use cashier checks "It gets their attention".
Now with all this information, the answer to your question is no. Their is no percentage to work with.
Welcome to REI and good luck. Keep postive.
It sounds like this property hasn't actually gone into "foreclosure" status yet?? If it hasn't, I can understand why the lender wouldn't accept your offer..the original owner will have to default for several months before foreclosure process starts...you may already know all of this (i'm thinking it through in my head). I've heard that most banks always lose at least $14K on each foreclosure.
I don't know what "percentage" they typically prefer for a short sale to work. I was unsuccessful in getting the price I wanted for a foreclosure also. I guess the REO (bank-owned) properties are easier to obtain b/c they're already the property of the bank's and they don't want to keep the money tied up??? Any other ideas?
Maybe a "Subject To" deal would work here...there are some forums on this site about that process and also some courses from the pros on how to do it! Sounds good
They were very specific from Asser and recorder of deeds office, etc.
If you will note the numbers, showed them nothing but loss. This has been the key for me in dealing with REO's.
You do need cash money when dealing with REO's.
Have a great day!