Any Potential In This Deal?
Hi there,
I came across a motivated seller who wants to avoid foreclosure, but I'm not sure if there is a profit potential in this deal. I'm learning to think creatively in REI and this is more of an exercise. What do you think:
2 Y.O. house, owner *says* value of property is $325K, the combined mortgage balance is $291K, monthly payments are $2800. No leins, according to owner. Owner says mortgage payments are current, house is in excellent condition, but backyard is only partially finished.
For the time being, let's assume the owner is correct with all the info (I wouldn't do this in reality of course).
Someone I know says rent for a 3BR in the area would be max $1600.
Since the property is 90% LTV and the mortgage payments are so high for the area, I don't see any profit potential, although I do see some equity.
Would the best idea be to wait for a foreclosure or something? Do you see any profit potential that I'm missing?
Thanks in advance for any info!
I definately wouldnt be buying that as an investment. At a 90% ltv, with closing costs, mortgage fees, brokers fees etc, I dont think the profit potential is there if you buy it outright. What I could see is if you are able to locate a buyer for the property and assume the contract to the buyer. Consider getting an option to buy the property from the seller, this way your not obligated to buy. With an option to buy you are able to legally look for a purchaser for the property and if you find a buyer to buy it for anything over what the seller owes, you just let the buyer assume the contract. (note, make sure when buying it you state the buyer will be your name or assignee) otherwise the seller might not be required to allow you to sell it. With an option, the only cost you will be out is the advertising costs. NOTE: Make sure you get an option to purchase, not a sales agreement. With a sales agreement you will be obligated to buy. Also note, to make the option agreement legal you must give, or atleast state that you have given the seller atleast $1.00, or else it is not a legally binding contract. pghquest@yahoo.com
_________________
[ Edited by pghquest on Date 03/23/2004 ]
I'm not seeing potential in renting it. You should look into the market yourself - get comfortable with what similar properties are selling for. Get recent home sale data at your county registry of deeds. Do research on what 3BR houses are renting for. Why is the seller motivated to avoid foreclosure if all the payments are current and there are no liens? Be wary. The numbers don't look good to me, unless it can be quickly flipped to a retail buyer.
I would take this property sub2. You offer the seller a few bucks to get out of the house and avoid foreclosure and you take over the payments. You then market it and find a buyer in the area that you can do a contract for deed with. You take a down payment of say 15-20k...make a profit over what you paid the seller. Issue them a note that covers the monthly plus pos cash flow and have them get traditional financing in 1-2 years. By the way, you sell it for the appreciated price when they get financing so you make money on the payoff too. Just what i would do if they really are motivated.
If the seller is lying (liens, 2nd mortgage, etc.) would this be something worth pursuing at this time or would it be better to wait for foreclosure? Not trying to steal u2's thunder, but I am only curious. :-?
This cud be a great deal. You say "I came across a motivated seller who wants to avoid foreclosure". You hv a motivated seller who really wants to get out of this house. You have determine FMV to see if selling "subto" is a good option. From yr info the loan to value is about 90% right now. Are there arrears?
You wud hv to bring these current if you are buying "subto", find a buyer, get down payment of at least $25000, add 30-50 K to the back end and sell on a land contract with a 2-3 year balloon. Suggest you draw up yr question and post it in the "subto" forum.
If he seller has received his notice of default from the mortgage company then there is good potential for a short sale. With a short sale you have to negotiate with the mortgage company for a discount on the loan. This allows you to create equity where little exists. In both cases you will have to get the seller to hand over the deed to the property. Both strategies require some expertise to structure and complete.
You truly need to find an experienced investor to work with you on this deal. Don't let this get away ... sounds like you have some rapport with the seller and he's motivated. you cud hv a good payday here but you need some help locally. Post on both the subto and short sale forums and ask for guidance.
Good luck.