Exit strategy ideas for a subject to deal - Posted by Jim IL

Posted by JohnB_NJ on February 26, 2001 at 17:46:01:


A shortsale is a taxable event for the sellers. The seller would have to agree to a short sale before Jim take the deed subject to the existing financing. Also with a shortsale, as you might already know, they lender will be looking real hard at the sellers financials and the appraised value of the house.

But again, I could be wrong… :wink:

Exit strategy ideas for a subject to deal - Posted by Jim IL

Posted by Jim IL on February 25, 2001 at 20:52:41:

Hello all,
I had another seller try to “Give” me their home today.
Here is the deal,
Home is in excellent shape, needs nothing.
FMV= ~$187k-190k (according to comps)
Loan Balance:~$171k
Payments: $1900/month PITI
Int rate on loan: 9%
New loan, only six months old.
Arrears: almost 2 payments, (~$3700) soon to be 3 (as of 03-01-2001)

Sellers will deed me the home.
I know that market rent on this is right at about the monthly payment on this home.
The market in this price range has been slow here lately, and this is my concern.
I know I will in all likelyhood have to hold this and cover this upcoming payment, plus the current arrears.

I obviously want to get a buyer who can cover the arrears, advertising and some cash in my pocket.
There is not a ton of equity here.
This is in one of our nicer areas, a smaller town real close to the larger ones.
The home is only 4 years old.

I generally offer L/O for all the homes I buy, but I was just trying to get some ideas from others to expand my horizons.
Plus, I know that in this price range even, getting at least $12k-$15k in option money seems difficult.
I just did a home somewhat like this one with a L/O, and felt that my profit was too low.
I was finding buyers who either had ALL I wanted upfront, but could not afford the monthly payments, (don’t want a negative cash flow, and the upfront was not large enough to compensate), or, able to afford the monthly payments, but only having like $5k in upfront money.
Which of course will not work here.

So, throw them at me here folks!
Ideas for an exit strategy on this one?
I will finish due diligence tomorrow, but assuming all is clear, then I want to record the deed and get to selling this puppy.
For the “maximum profit” of course.

Thanks in advance for any ideas,
Jim IL

If your Seller won’t contribute - Posted by Monique

Posted by Monique on February 27, 2001 at 07:29:03:


You’ve gotten great answers already. One more thing to consider …

If your Seller can’t/won’t contribute to picking up some of the arrearages for your helping him save his hide, then make up the back payments judiciously. That is, make it clear to the seller that you will take the deed, and then you will send in one payment towards the arrearages. The Seller is certainly in better shape with you in the picture making partial payments than before you got there. Depending on how quickly the bank moves toward foreclosure, you might be able to stall until you find your T/B.

Ultimately, you will have to make up all the arrearages. But by making incremental payments to stave off foreclosure (instead of making one large lump sum that brings it fully current), you can even out your cash flow a bit until your Buyer comes along with their down payment or option consideration.

Clearly, it would be ideal if your Seller could contribute some amount to the arrearages so that you can bring the loan current.

My $0.02!

PacTrust - Posted by Gene S Hou Tx

Posted by Gene S Hou Tx on February 26, 2001 at 11:33:31:

Hello everyone:
In this price range they are itimizing. Push mp higher by showing after tax amt. PT should allow you to get more $ both monthly & upfront than L/O b/c they are owners. Prove to seller PT is best solution (pain relief) for him ie. no 1099 on short sale ,etc. Then negotiate lump sum or monthly contribution for awhile from seller as best alternative to other consequences. Write acquistion contract with 45 day free look w/ right to show & advertise. My 3 cents.

Gene S

Re: Exit strategy ideas for a subject to deal - Posted by Vic

Posted by Vic on February 26, 2001 at 07:17:49:


I like Rick & David’s advice below, with one caveat.

Be very, very certain that you can move this house quickly.

I have a house that I bought recently something similar to this. Seller was a pre-foreclosure. Loan bal was 69K. I bought this house on a land contract & came up with about another 6K in back pmts. I thought I could sell this thing in a month or two being that it was in a somewhat decent area. I priced it at 94K, which was a pretty good price. That was in Oct of 2000. Well I finally got it under contract last week. Needless to say the holding costs were not fun.

So make sure you don’t get stuck. Around here I wouldn’t touch a 180K house for that reason. The holding costs will take all your profits in a hurry.

I do think though that you can get more money up front on a land contract becuase there’s more of a sense of ownership.

Good Luck,

David is onto something here … - Posted by Rick Wheat

Posted by Rick Wheat on February 26, 2001 at 05:59:24:

When there is little equity in a “Pre-foreclosure” situation (70% - 80% of my business), I usually try to get SOME type of contribution from my seller. The position they have found themselves in is that by this point the mortgage company will usually not accept anything less than full payment of the arrearage, and unless they can come up with that, they go into foreclosure.

I usually start with about half of the arrearage, and settle for anything I can get. On this particular deal, I would anticipate I could get +/- 5% down from a Tenant/Buyer on a Lease/Option ($10k on a sales price of $199,500). If you add the $2 - $3,000 possible contribution from the Seller, it looks pretty good.

Worst case scenario - $0.00 from the Seller, $7,500 from the Tenant/Buyer. Should move fairly quickly, to someone with “pretty good” credit. Offer to pay 3% of their closing costs for a quick sale at the $199,500 sales price ($6,000), for a net to you of +/-$13 - $15,000.

I’ve done several of these over the last year, (I call them my Retail Flips), and one of them netted me $22,000!!! The key to this strategy is to have a mortgage company that can get your Buyers approved QUICKLY, and can massage marginal credit into something they can work with.

You should try it. After all, how many pretty houses do you think you could buy at $0.95 cents on the dollar??? Works for me!


Rick Wheat

Hmmm… - Posted by David Alexander

Posted by David Alexander on February 26, 2001 at 02:17:35:

A. Short Sale and go for cash (already mentioned)

B. Wrap on a Contract for Deed (check into your states statutes before doing this, but you hsould be able to get more down, by giving ownership)

C. PacTrust

D. Discount or trade the bad note (Unless it’s a big institution, in which case it’s probably not worth the time)

E. Seller Contribution for saving there A** ??

David Alexander

Re: Exit strategy ideas for a subject to deal - Posted by John P

Posted by John P on February 26, 2001 at 24:29:40:

What about finding a buyer and doing a short sale with the bank? Have you talk to the bank and ask about rolling in the back payments into the mortgage to bring it current?I amtrying to throw them at you.

John P.S.FL