How Do I Work This? New House, Has 22K Equity And No Mortgage.
Hello everyone...I have found a house that has an asking price of $89,600 and was appraised in April for $112,000. There is no mortgage on the house because it was newly built and the person planning to buy it could not get the financing they were hoping to get. The construction company who owns it basically wants it off their books and wants to sell it at invoice. My question is this...is this something that investors would be interested in? Is there still a creative way to finance this since there is no mortgage. I am not looking to get this on my own, but I would like to pass it on to an investor as a bird dog. One gentleman investor I have talked to told me that you should NEVER finance real estate investments. Any input would be greatly appreciated! Thanks in advance...Sarah
The job of a birddogger is to find the deals. If it looks good to one of your investors, pass it on to them and I'd ask to come along for the negotiating in order to learn.
some FYI here, it's got a mortgage. It may not be a standard loan, but I'd be willing to bet that there is some type of loan against the property.
Roger
Just wanted to add this, too. You really can't get equity in a new home purchase. New homes aren't in the same playing field as resales. If you buy the property for $86K, then that will most likely be the new 'value' for the home since that is the price it was first sold at.
It probably wouldn't be constued as a 'desparation sell'
Roger
Thanks for the great insight, Rajwarrior!
If there were no mortgage, (and like the other guy said there probably is) then the equity would be the selling price - mortgage (zero). So it would be the 90k or so.
But what interests me more is the guy who said to never finance real estate. Does this person pay cash for everything? That doesn't make sense to me. Surely not something a "Creative Investor" would do.
Ho...
Disclaimer: I have never purchased from a builder....
But it seems to me that if the house solidly appraises for $112k (FMV) and the builder will let it go for $90k (maybe less?), you would have "instant equity" after purchase of 112 minus (90k minus the down payment you needed to put up). So if you could get financing with 10% down ($9k), the equity would be $112-$81k=$31k.
It sounds like the market might be slow in your area (otherwise why would the builder need to offer such a steep discount to unload the house), so an investor might have to hold the house for a while before being able to resell. What are rents like in the area? Enough to cover the mortgage plus some cash flow?
BTW, I have read of an investor who "specializes" in buying leftovers from builders- now I can't remember who it was!
As far as the "gentleman investor" who said that you should NEVER finance real estate investments... keep in mind that RE investments are the only kind that BANKS will lend on.
Thanks so much, everyone, for taking the time to respond to my post. HoGiHung, (very interesting screen name ) I was told by the contractor that the $89,600 was the cost for building the house. You all are probably right in saying that there was some kind of loan involved. I need to talk to the guy again because he claims that there is no mortgage on the house. Maybe he paid cash to build it, or maybe he doesn't consider the loan for the building costs a mortgage. I'm a little confused. I asked why he was selling it for so much less than the appraisel value and he said that the house has been on their books since 2000 waiting for this buyer to get the lending needed. He also said that this past weekend was the first time he has advertised it. Something doesn't seem right to me. Arwen, the house is out in the middle of nowhere near all of this farm land. I don't think there are any renters near by. I think it is wise for me to forget about this one. As for the investor I spoke to, he does Lease/Options, Subject to's only. His words were "If I were you, I would NEVER finance any RE investments." He seems to do well. I was just curious about other opinions on this statement. Thanks again!
Sarahte,
Tell your investor friend that he needs to clarify his statements. Any time that you are making a payment on something, it's borrowed. I'm sure that he meant never conventionally finance a property (though it has it's uses too).
Roger
Have you or a realtor friend done comps on this one? HOw do you know what the value really is? I would never take the sellers word for this.
As a builder, we would use a construction loan to build a house and then refinance unless we were a real big outftit that could self finance.
Try checking at the courthouse for any liens on the property.
In the country isn't bad depending on your market,
Roger, thanks for the clarification. You are probably correct. The investor had said this to me in an email. Next time I talk to him I'll ask what he meant. Stockpro99, I have not checked the comps, but I have passed it on to an investor to see if this is something that can work. I'll let everyone know what happens.
Please do keep us posted on this one. I would like to hear the final outcome on it. It has the elements of a good STORY.
JR
Will do!