Financing suggestions please - Posted by John

Posted by Ben in Ohio on May 22, 2000 at 07:11:46:

Is the bank the owner? If so, you need to negotiate with them. The bank wants to see the experience level you have in completing this type of deal. It’s possible to get it with little down if you have a track record with other banks and/or other similar types of property in this price range.

If the original owners have it negotiate with them, get it under contract and decide what you want to do–flip it, find your lender/partner. Either way, certainly call the building department to find out about the existing permits, etc. Chance are there are unpaid subs and/or trades. Could be a winner if you’re careful.

Financing suggestions please - Posted by John

Posted by John on May 20, 2000 at 22:18:44:

I want to buy a house that is condemned (thats right, condemned).

The house is unfinished. The bank explains that the people who were having the house built changed the plans so many times that they ran out of money and couldn’t complete it. The bank foreclosed. Because the house has been sitting unfinished for an estimated 4 years, the city condemned it.

I want it, but my money is tied up in several other ventures and I don’t have any rich relatives (this isn’t your ordinary house either. Estimated value when finished would be in excess of $300,000).

Anyone ever bought a condemned property in any other way other than straight cash? Or, anyone know of any financing programs offered by banks that I can look into? Or, anyone know of a venture group that does short term lending (one of my ventures will be completed within two months. Then I’d be able to repay the venture lending and take over the finishing of the other property).

Any suggestions?

Re: Financing suggestions please - Posted by Ed Garcia

Posted by Ed Garcia on May 20, 2000 at 23:30:59:

John,

You’ve told us nothing about yourself or qualifications. How would we know,
what your financial situation is?

You also have given us little information to analyze this deal from.

Example:

John you haven’t told us how far from completion the house is?

Is it 50% complete, 70% complete, what ever, that’s the first piece of information
we need.

What do you think it will be worth when it’s complete?

How motivated is the seller?

How much do you think you could buy it for?

How much do you think it’s going to cost to finish it?

Then the next question is how does this house or property conform to the area?
Meaning does the value of this property conform with other housing around it,
or are is it over built for the area?

John the condemned status can be changed, but I would check with the city, or county
if you’re in rural area, to see what the status is.

This deal can be approached in many different ways. The bank that owns it could be a
good candidate for financing, due to they should be motivated to recapture as much
of their loss as possible.

John any answers I give you at this point would be too hypothetical to be of much help.
My suggestion is for you get these first questions answered before you concern yourself
with what lenders you can use to take the deal down.

Ed Garcia

Re: Financing suggestions please - Posted by John

Posted by John on May 21, 2000 at 22:45:05:

Ok, I’ll try to fill in some more blanks.

“You’ve told us nothing about yourself or qualifications. How would we know,
what your financial situation is?”

I buy houses that are generally one city council meeting away from being condemned and torn down. I then rehab the entire structure top to bottom. When completed I rent the place or sell it. If renting, I mortgage the property to recoup my money. I’ve only done a few, so my rapore with a bank is still limited. Also, when I do mortgage a property, I go the no income verification, no doc approach (for reasons that only I know).

“Is it 50% complete, 70% complete, what ever, that’s the first piece of information
we need.”

Perhaps 35, maybe 40% completed. The foundation is there, the exterior framing and sheathing is on, doors, windows, roofing. The interior is studded, but thats about it.

“What do you think it will be worth when it’s complete?”

In excess of $300,000

“How motivated is the seller?”

Real motivated since the last I heard the city within the past week was issuing a final notice to do something with it or it will be torn down. If torn down they’ll have a vacant lot with a lien on it. I would think its to their advantage to get rid of it quickly.

“How much do you think you could buy it for?”

Less than $40,000 (no kidding). The lender has asked two agents to try and arrive at a figure for it. The agents say they can’t and that it should just go to an open bid. From what I’ve been told (by very reliable sources) the highest bids being tossed around right now are in the upper 20s. No joke…!

“How much do you think it’s going to cost to finish it?”

Conservatively, $50,000. Realistically, $75,000


Then the next question is how does this house or property conform to the area?
Meaning does the value of this property conform with other housing around it,
or are is it over built for the area?”

This is a secluded subdivision where all of the building has already been done. There are two lots left to build on out of perhaps 40 available when it was started. The land is locked in by water, no more building in the area. And all of the houses in the area are worth 280 to $350,000.

Any suggestions?

Re: Financing suggestions please - Posted by Ed Garcia

Posted by Ed Garcia on May 22, 2000 at 20:13:42:

I understand your answers. Bottom line is, that there is a deal here.

With the estimated value of $300,000, and the purchase price of $40,000, and $75,000
for repairs, that gives you a difference of $185,000. Now add the cost of financing,
holding cost, and commissions to sell it, that would be in the ball park of $63,000.

Take $63,000 away from $185,000 = a profit of $122,000. John, for that kind of money,
it’s worth selling the farm.

John, you fired your answers back as though you know where the bodies lye on this deal.
But the fact that you’re in the dilemma that you’re in, tells me different.

John, I’ll be in my office tomorrow morning at 9:30 a.m. California time, why don’t you
give me a call. Obviously I need to ask you some personal questions along the lines of
credit etc. At this point I see the bank that owns the REO as the lender to lend you the
money. That’s so obvious that the fact that you haven’t done it tells me, either the bank
is tired of the deal and just wants out, or you don’t qualify with the bank for a
construction loan, or both. In order to help you, I need to know what you are bringing to the party.

My phone number is (909) 944-0199. John I want to make it clear that I’m not soliciting
you, because what you need is a construction loan, and I can’t do one for you in your area.
But I think I may have some idea’s that could be useful to you.

Ed Garcia