How to Handle Refinanced Loan? - Posted by PatrickMD

Posted by PatrickMD on January 30, 2001 at 13:43:10:

Thanks, Matt. I thought I asked the question, but looking back at my notes, I obviously didn’t write down the answer. I agree about getting the data before I waste my time.
So, it’s nothing fancy: there has to be enough spread to pay off the loan and get paid too, right? Thanks again. Pat.

How to Handle Refinanced Loan? - Posted by PatrickMD

Posted by PatrickMD on January 30, 2001 at 10:41:58:

Hi, one and all! I have a motivated owner of an ugly house on the line. Thought I had prequalified him thoroughly & it looked like a good flip candidate. Here are the details:
Circa 1920’s 1200 sq. ft. 2 storey brick prochfront row house in clean narrow side street and alley off major blvd. Adjacent to hospital (NOT Johns Hopkins!) and shopping. Neighborhood houses well-kept neighbors by young & middle-aged couples, or older VFW respectable types. This house is one of the 3 on brink of slum to 47 well-maintained. House needs: roof & porch roof hot mopped; new porch soffit, gutter, & downspout; and front trim painted; AC; kitchen & 2 bathrooms completely rehabbed; new panel box; all floors redone and all interior paint; new storm doors; 2 front upper vinyl window replacements; new back basement door; new chain link fence; concrete backyard sealed, & deck upgraded to meet safety standards. $11,000 worth. Next door neighbor is spiffed up as SFH w/ mother-in-law basement apt. listed for sale at skyhigh $75,000. My comps show
$67K ARV x.70=$46,900-$11K repairs=$35,900 MAO. Minus my $5K=
$30,900. max offer. This was the owner’s first house, has had it for 25 yrs. I was ready to make the offer tonight, but last night he drops the bomb on me; “What are you going to do about my mortgage?” What mortgage! He said he refinanced and that $46,000 is outstanding. (He’s going to get back to me on the original amount, the equity in it, and the length of time.)
This is my third deal I’m trying to put together and the third time I’ve been hit with a refinance. I can’t lease/option ugly houses. What tenant/buyer client in their right mind is going to pay higher-than-market rent AND make the repairs? No bank will touch it to qualify them for a new mortgage! I don’t think he tried to pull a fast one, I just think he’s ignorant of the whole creative RE game.
My questions are: what is the technique we use when they play the refinanced card? What can we do with that $46K debt? & How much equity is a good safety margin? 45 percent or more? Thanks for your thoughts in advance.
With the Baltimore Ravens winning the Superbowl, it started out to be such a good week!

Re: How to Handle Refinanced Loan? - Posted by Brent_IL

Posted by Brent_IL on January 30, 2001 at 12:20:06:

I agree with Matt. With the $46K + 11K + closing, carrying, and selling expenses, there’s nothing left to repay you for your time, money, and efforts.

You might try mentioning that since the borrowed money obviously wasn’t spent on the house, it is unfair to ask the property to repay the money. Not much of a comeback, but it is his problem. Don?t make it yours.

Re: How to Handle Refinanced Loan? - Posted by Matt B

Posted by Matt B on January 30, 2001 at 11:21:42:

Here is the technique to use when they “play the refinanced card”. As you stand facing the seller, do a 180 degree turn. Then extend your right foot forward approximately 18 inches and set it down. Repeat this procedure with your left foot, and continue until you are back out to your car, driving away from bad deal.

You have already answered your own question. You know what your MAO is. Don’t keep trying to squeeze a deal out of something that is obviously not. Why didn’t you find out about the mortgage when you first talked to this guy? That is pretty darned important. One of the VERY FIRST questions that you need to ask is if there is a mortgage and how much is owed.

If you already asked this and the seller just now got around to telling you, that’s a different story. However, if you’re not bothering to ask about this before you waste a whole lot of time checking out what repairs it needs, pulling comps, submitting offers, etc., the deals you do will be few and far between.

Get the information that you need FIRST before taking the time to go look at a property. Find out the seller’s motivation level, find out what they NEED. Notice how I said to find out what they need and not what they want. Even if you you forgot to ask if there was a mortgage, if you had asked what the seller needed, he would probably tell you that he needed to pay off the mortgage on the house!!

Don’t try to tweak that MAO formula that you’re using just to try to justify getting into a bad deal. Stick with the formula unless you want to learn some hard lessons. There are PLENTY of good deals out there. Don’t think you have to sign up every property you come across. But make sure to start by getting the information that you need FIRST before wasting any time. Good luck.