Posted by Natalie-VA on July 07, 2008 at 08:44:13:
Hi Jeremy,
I understand how to make money in real estate. My question was really about this particular poster. He can only afford $1300 per month, and I can’t see how getting the deed (in this case) is good advice for him.
Thanks for taking the time to write.
–Natalie
any way to buy this house? - Posted by Jes
Posted by Jes on July 03, 2008 at 21:04:41:
Aloha, we are renting a house in Hawaii from someone who lives in California and who wants to sell the house. He bought the house for 390k when the market was high a few years ago. It has sat vacant for many years and a few months ago we started renting it for $1050 a month (which is a great deal…it’s almost ocean front and is a nice three bedroom house…not really big but decent 1200 sq ft with large wrap deck and a split level large yard with lots of potential. I think it was to be a fixer upper for him but he had to move back to California and now he’s stuck with it…it will not sell for his original asking price of 350k which was below what he paid for it. Even renting it to us he’s taking a loss of $1200/month on the mortgage.
I’m interested in buying the house but only if he went down considerably in price, and only if we could comfortably afford it. I have not yet talked to a real estate agent for comps but I do know the market in this area is horrible (slow sales) and we have a lot of vacant and foreclosed houses out here.
The owner does not have any equity in the house.
What may be some of our options for buying the house or his options for selling? I thought possibly an owner finance situation or a lease op where part of our rent was going towards the purchase price of the house but to be in our affordable monthly house payment range it would have to be around $1300 a month…no more than that or we would not be very comnfortable. I dont know if he would carry the additional amount to cover the current loan, although right now he is covering the amount minus the rent we pay.
I’d prefer NOT to get a loan.
Part of me really loves this house and sees the gem it could be if we did some basic landscaping in the yard, maybe added a room. It is across the street from the ocean and has partial ocean views in three of the bedrooms and front deck. The neighborhood is clean , quiet and other homes next to us are appraised at 700k range. But I do not want to be stuck with a problem. My husband and I are debt free right now , our rent is affordable, and the rotten market concerns me. I like not being committed to a mortgage.
Any words of advice or possible ways to buy/finance that would be a smart investment ?
Thanks for any help
Jesennia
Re: any way to buy this house? - Posted by mt
Posted by mt on July 04, 2008 at 20:31:41:
Congratulations on being debt-free and living within your means. Many people these days would love to be in your financial shoes. Let’s keep it that way.
If all you can afford is about $1300 a month on housing, I would forget this deal unless you can get that house for half what he paid. $1300 per month at 6.5% will afford you only approx. a $200k house and that is NOT counting taxes and insurance. If $1300 is your top monthly limit, then at 6.5% you need to buy a house for even less than $200k if you are not putting much down.
If I were you I would NOT get into any sort of lease option scheme on this house because if the PRICE is not about $200k you CANNOT AFFORD IT and you would most certainly just wind up losing the house eventually and all the extra money you put into “buying” it. Be realistic. Don’t make HIS problem YOUR problem.
At some point, if he defaults on the payments the bank will begin foreclosure proceedings and the house may possibly be put up for a short sale via a realtor. A short sale is when the bank is willing to take less than what is owed on the house. You can make a lowball $200k offer and you might get lucky if nobody comes in with a higher offer. Have at the ready your preapproval letter when making such an offer. If you don’t get the house at a price you can afford then look for another property in your price range (if possible) or else continue to rent at a rate you can handle. And start saving for a bigger downpayment. That would also improve your chances to do an owner-financed deal as well.
Just remember to never get lured into deals just because you found somebody with a problem and/or you fell in love with the house. Crunch the numbers carefully and only buy when it makes true financial sense - if and when you can ACTUALLY afford the property - and you will then continue to keep away from the financial trouble and ruin that so many others are experiencing today.
Re: any way to buy this house? - Posted by Jeremy Burgess
Posted by Jeremy Burgess on July 04, 2008 at 10:58:29:
A couple of things.
What can you comfortable afford? Even if you stole this house for $300,000, a 30 year fixed at 6.5% will cost you $1900 a month and that does not include insurance and taxes. Even if you bought the house for $250,000 your payment would be $1600 a month. So, I think you need to be more realistic when you are compareing your really low rent to what the actual cost would be if you got a great deal on the house.
That being said, I will assume that you would prefer some sort of owner financing. Sellers have specific reasons for even contemplating a create offer. Usually it involves cash flow. The reason your landlord would rent to you for less than his payment indicates that he just wants most of his payment covered. It seems highly likely, especially since he hasn’t been able to sell it, that he would be receptive to your offer.
That being said, your offer needs to take into consideration his needs. Believe it or not, he doesn’t care about what you want. He wants his problem solved. If you take this approach and actually figure out what he needs, then solve it, you should be good.
While a lease option could work, it looks like he owes more than the house is currently worth. If you persued a lease option, you would want to make it a long one. This would give you time to build up a down payment with part of your rent going towards to the option price. This will also build in some equity for you. It will also give the market time to recover and turn around, which it will, and then more equity will be built in for you. More than likely, you will have to raise your monthly payments to cover all his cost and a little extra every month so he can profit. This is why investors invest in real estate, to profit. Remember that.
Here is my prefered method to do seller financed deals that have no equity. Get the deed and take over his payments. This is referred to as SUB TO deals. He will sign over the deed to you, so you actually own it, in exchange for debt relief and maybe something a little extra. I love this technique but you need to be a little realistic. Why would he do this? What could you do to sweeten the pot? Here is what I would pitch for such a large risk on his part. Offer to put down $10,000 and to take over his monthly pauments in exchange for him deeding you the house. Your $10,000 is a large commitment which may make him feel more comfortable taking such a large risk. Then he will get debt relief, a little money in his pocket, and no more worries.
Couple of things to watch out for:
Sounds like he may have one of those arm loans. Figure out what kind of loan he has and make sure it is current as well. Make sure you do a title search and for petes sake have a formal closing and get title insurance. This will protect you from many nightmares and yes it will cost some money but it is money well spent.
As to your reference about not being committed to a mortgage, do you want to be a renter all of your life? Renters build no wealth for themselves, they build it for their landlords. Figure out which side of the equation you want to be on. Real estate is a long term investment and the single best way to build wealth in the world. The best to you and your family. Feel free to ask me any questions you may have.
Jeremy Burgess
www.WholesaleMi.com
www.DetroitInvestmentSecrets.com
www.UrbanDetroitOnline.com
Re: any way to buy this house? - Posted by Natalie-Va
Posted by Natalie-Va on July 06, 2008 at 13:36:31:
Jeremy,
How would “getting the deed” on an over-leveraged house be beneficial to the poster? So, the loan is not in his name, but he would still own a house where the loan is for more than it’s worth, right? Please clarify for me.
–Natalie
Re: any way to buy this house? - Posted by Jeremy Burgess
Posted by Jeremy Burgess on July 06, 2008 at 16:02:51:
Hi Natalie,
There are 2 ways to evaluate all of your real estate deals. The one most people focus on is price. If you get the price you want then you will profit. The next thing to look at is terms. If you can’t get the price you want then you get terms that are very favorable to you so you can profit.
In this case the seller “currently” owes more than it’s worth and can’t give you your price, there are many things you could do with the terms that could solve the sellers problem and make you money. Believe it or not, there are people who have 10% to put down on a house that can’t get financing right now.
So, in the example I used before, you take over the loan subto with a balance of $390,000 by giving the seller $10,000. Your monthly payments are going to be in the $1800 range. You then will owner finance the deal (not lease option, I’m talking contract for deed, land contracts, wraps etc) that way it doesn’t matter that the house is currently overleveraged. You are the bank and you “approved” the value to be $420,000. So Mr and Mrs NEW HOMEOWNER has $20,000 (or anything more than the $10,000 you put down) and can afford $2400 a month in payments.
So in this example you make money on the down payment, the monthly spread, and if they ever refinance it (they probably will at some point) you will make money then.
This is how you take a deal that doesn’t work on price and make it work on your “terms”. This is also helpful for those investors who are currently maxed out on the mortgages they can have in their name.
Hope I was more clear and it is more understandable for you. Don’t hesitate to ask any questions if you have them.
Jeremy Burgess
www.WholesaleMi.com
www.DetroitInvestmentSecrets.com
www.UrbanDetroitOnline.com