Has Anyone Successfully Done This?
I have an opportunity to purchase a pre-foreclosure home for $65,000. The market value for this property is over $200k. I would like to help the seller get out of his situation but a bit unconventionally.
1. I will purchase the property for $65,000, zero down, interest only loan.
2. At closing I will take out 20k. 10k for me and 10k for an up front lease agreement.
3. I will allow the people to live in the home for 6-12 months with an option to buy at the end of the term.
I calculated insurance, interest, taxes and maintenance to run about $480 p/month.
After 1 year I have a net profit of $4256.00 over and above the original $10k I got a closing. If the tenants (previous owners) have resolved their financial situation and qualify for the home, I will sell it back to them for $85,000.
I solved their predicament and made over $14,000 in 1 year (assuming no major repairs were needed during this time frame).
What would be my tax liabilites in this situation?
Standard wisdom says to not lease back to the people you acquire from. There's PLENTY of posts on here where people have gotten into trouble by doing so... Also, if the people can't afford the house now, how can they afford it when the price goes up? Just fuel for thought...
Thanks for the reply... Any one else have any insight into this.
I would like to hear comments from anyone who has gotten burned doing this.
It sounds good on paper but what kind of problems could I run into?
kidglovs,
your going to do all this work to make 14k in a year ??? with the risks of selling back to someone who has shown to not be able to pay their bills ??? if the property is worth 200k, why dont you just buy it fix it up and resell it for 200k? im missing something here. sounds like your getting creative for creatives sake.
I'm just throwing around ideas and trying to get some kind of feedback. Thank you for yours.
I'm looking to do something different. Instead of simply removing someone from their home as is the norm, I'm looking to help a homeowner keep their house while I make some cash. If the concept flies, and I can reproduce it several times in a year, there is money to be made. Granted, not as much as with the conventional method, but money nonetheless.
Now, if they do not qualify at the end of the lease term, or they have not cleared their credit problems, I WILL sell the house for market value.
I just wanted to know if there is anyone in the forum that has considered or even done this and what results they have achieved.
Thanks again for the feedback...
I think you're missing the point. If they cannot afford their mortgage payment for the last few months, how can they now? What is their REASON for skipping payments?
It would be more beneficial for everyone for you to buy the house, fix it, sell it. If you would like to help the homeowner, give them a large $20k chunk of change when you profit. That will help them 10x more than anything. Doing it the way you are saying is just not the best money for your time.
Quote:
On 2004-11-10 17:20, kidglovs wrote:
I'm just throwing around ideas and trying to get some kind of feedback. Thank you for yours.
I'm looking to do something different. Instead of simply removing someone from their home as is the norm, I'm looking to help a homeowner keep their house while I make some cash. If the concept flies, and I can reproduce it several times in a year, there is money to be made. Granted, not as much as with the conventional method, but money nonetheless.
Now, if they do not qualify at the end of the lease term, or they have not cleared their credit problems, I WILL sell the house for market value.
I just wanted to know if there is anyone in the forum that has considered or even done this and what results they have achieved.
Thanks again for the feedback...
Hey,
It sounds like you want to ignore everyone's good advice on being careful structuring a deal in this manner and you really just want someone to endorse your idea. So here goes...
This is a great idea. I hope it works for you
FYI: If you can really find houses for 32.5% of FMV, you don't need anyones help.
I am not an expert, but I thought the FL homestead laws protected the homeowner from having his house taken by creditors when in bankruptcy.
Maybe, all your pre-foreclosure homeowner needs to do is file bankruptcy.
You must be kidding right? I have an idea; flip the property and move on to your next home.
I see how this could be succesful and I am personally wanting to do a similar venture. 1 year with a higher price seems impossible for them to buy it back. unless they havent made a late payment on the home, the credit has to be shot. 2 years of renting with providing financial help (advisement) might get them back into good loan paper again. In my unprofessional opinion, I believe you should go to a lender and ask them, when will the tenants credit be in good enough standing to get a decent loan. take that number an hold some money, or have rent credit to help them with down payment, then in a year (prob longer) you can sell it back with one of the best tenats ever.
Why could this work- Reputation.
If you could perfect this "Help pre-forclosures and keep your home" approach, deals will come to you. $14000.00 per home a year with 20 homes under your belt = 280,000 a year. As for taxes and repair, not sure
but if you went big, i smell an LLC
Since what you're looking for is an experience type response I'll give you one. First I'm not going to tell you what to do or even give my opinion on what you should do because the way you're posting shows you're going to do what you want anyway.
Here's my experience:
Last year I started in RE by trying to be a good friend. My friend went into foreclosure and I knew that if she lost her home, she would have no place to go with her children and she would expect me to invite her to live with me and my family. That scenario was not going to happen. I bought her house. I bought three more houses the same way last year. The deal was, the homeowner was supposed to get their credits together an purchase their homes back in a year. Here it is a year later, I still have all three homes. My friend pays her rent but she pays late. One of the other previous owners had to be evicted because she didn't pay her rent and gave me a bounced check. I've been paying a mortgage on that property since June. I evicted her in August. The other property I have the previous owner pays on time and is working on getting his credit together but his time was up in August. He was supposed to have bought his house back in August. Had I known then what I know now, I would never have done it this way. Live and learn. I made lots of money but the headache of trying to get money from these people is not worth it to me.
Take from this what you will and good luck
quinn
Reputation is a confusing thing in this business. You will never get a "good" reputation because most people in foreclosure aren't going to go brag to their friends about how they were about to lose their house and you saved the day. What you WILL get is a bad reputation though if you try to do something dishonest without telling the sellers. If you disclose to the sellers that you are taking their debt over and trying to make a profit, then there is nothing wrong with making money, whether it be $5k or $100k. If you have a conscience about it, then do an equity split, take over their payments and tell them you'll split equity with them when it sells
I just asked this question maybe three weeks ago, and the responses on this board and with my research made me decide not to do it.
Called my hard money lender and asked him about paying off the loan and becoming the lender for the home owners (not a L/O). He went on for 30 minutes about RESPA and high interest loans and if you do not do exactly the correct disclosures and paper work you will have to pay huge fines. My hard money lender has been lending money for 30 years and he will not touch owner occupied high interest loans.
On this board they talked about usary when you help out a home owner by buying and then L/O. Usary is charging above the state or federal amount of interest allowed. You figure out how much interest there is on a 65k loan for six months where you make some 20k. Definately above the allowable interest rate.
I have heard that if you shuffle the title around, then you can over come the usary. But I know nothing about that.
Brenda
Theoretically, you can avoid usury by selling to another investor who lease options back to the sellers. Now, as far as I know, that has not been tested in the courts. If it were me, I would help them out of the situation, but they would not be able to stay in their home.
Quote: So, the question really is.... is this type of scheme even worth troubling with, or should he just try to buy the house which is going to cost MORE than that $65k?
I think people are saying loud and clear that it is more trouble than it is worth. And I suspect that the poster would love to buy the property, but the owners will not sell it unless they get to remain in the property. This is as common a situation as vanilla ice cream. Yet the experience people on this forum are saying that they do not allow the home owner to stay in the property. I do not know how much clearer it could be.