How would you do this? - Posted by Doug

Posted by Ed Garcia on February 02, 2000 at 10:24:21:


With the numbers that you’ve given. I figure that the rate of the doctors loan is
between 7.3/8 and 7.1/2%., you’re not going to do any better than that.
Remember, you still have taxes and insurance, that I don’t think is in the payment.

You might be right, the doctor might be interested in doing a lease option for
2000 with a negative cash flow. After all he makes good money, and may enjoy
the write off. On the other hand he may just want out of the deal, period.

But for me, that’s not the move I would make. I would offer to T O P ( take over payments)
on the loan and pay the realtors commission of 3%, of course giving the realtor a note for
the 3% and do the deal. I know that it would be a stretch for you, but if you can pull it off.
It would be worth it. I think you can cut your best deal NOW, because the doctor is MOTIVATED.

You’d be purchasing the deal at 80%LTV, which is not a great deal, but a deal.
Keep in mind that this is a high dollar house, that normally requires a two income family, and
as a result, will take time to market.

Ed Garcia

How would you do this? - Posted by Doug

Posted by Doug on February 02, 2000 at 09:29:08:

First off, I’m looking for my personal residence, and not an investment, and I am a newbie at creative real estate. I have bought and sold several houses, all personal residences at full retail with brokers. So, to say the least, I’m not an expert by any means.

Here’s the situation.

I have found a pretty house in an executive suburb that is vacant. The price range of houses in this neighborhood are in the $500K - $1M range. This house is listed (by broker) at $429K. This house comps out at $450K using the price/sqft method. This house is one of the ‘smaller’ houses in the neighborhood.

In ‘98 a doctor had the house custom built for himself and his fiance’. They lived in the house for 6 months (beginning of '99) and the engagement broke off. The doctor kicked the girlfriend out and continued to live in the house for another 3 months. The girlfriend was one of the nurses that he worked with, and he got tired of seeing her constantly and put in for a transfer to another state. In April of 99 he got his transfer out of state and his house has been listed (vacant) since then. I figured that I would let him become more ‘desparate’ before I would make my move.

Well, last week I drove by and saw that there is a “For Rent” sign in the front window. I called the number and got the RE agent. She said that he is feeling the pinch of the payment and ‘wants someone to make his payment for him, until he can sell it.’ I asked her if he would be interested in a L/O and she said that he would entertain all offers. I asked what rent amount he is looking for, and she said $2400/mo.

I checked with the Co. Assessors office and found that his loan balance is $347K.

Here’s my situation:

I can’t afford a jumbo mortgage of $347K, I don’t have $20K to put down, and I can handle $2000/mo.

So my question for you experts out there, is this do-able? If so, what approach should I take? Is a L/O a good idea in this circumstance? What terms on a L/O would be reasonable?

Any advice would be appreciated.

Thanks in advance.

Re: How would you do this? - Posted by Potash

Posted by Potash on February 02, 2000 at 22:18:43:

I’d find a neighborhood I could afford.

Re: The PACTrust point of view - Posted by Bill Gatten

Posted by Bill Gatten on February 02, 2000 at 16:32:41:

Sigh…this would be a perfect PACTrust transaction.

Remember: Paying $2,400 per month in rent is like making a house payment of one-third that amount ($1,600 per-month: assuming, say, a 28% Fed. and 6% state tax bracket). If you can afford as much as $2,000 in rent, then (for all practical purposes) you can afford a house payment of approximately $3,000. The after tax is the same either way (assuming you’re not hiding major sources of income from the IRS).

Why not offer the good Doc MORE rent than he’s asking? Say $2,500 p/mo. to cover PITI…that’s far less after tax than $2,000 in just rent. Then agree that if he’ll put the property into a land trust and make you a co-beneficiary (he’ll like the trust remaining in his name) that you’ll also take over all of his repairs, maintenance and management costs, etc. Then…agree that at the end, in 3, 4 or 5 years, you’ll sell the property or refinance it in your own name and pay off his current loan and give him back any equity he’s been carrying for you.

In this scenario, your benefits are exactly the same as if you’d bought the house any other way (plus some extras…like anonymity and a shielding of the title); and… the “carrying seller” doesn’t have to transfer the title to you, or take undue chances with any potential for your legal or personal problems (liens, judgments, etc.) along the way.

I drool when I see opportunities like this. In my own home (the one in which I live in Ca.) the situation and values were almost identical to the one you?re mentioning. My deal with the seller (Doctor and Mrs. Yaqub) was that if they?d put the property into the Yaqub Trust, I’d pay a full $3,000 p. mo and cover all closing costs?AND? give them 50% of any future appreciation there might be. They needed merely accept my assessment of value, and agree to a five-year agreement (with an extension for another two, in the event that financing were to become difficult or the market were to become soft at the end of the five years). In the process, I have acquired a wonderful home ('cost me a little over $3,000 to get in; no bank qualifying; no down payment; no credit qualifying; no credit risk; etc. AND…I have 100% of the tax deductions for interest and property tax; 100% of the house (use, occupancy, etc.); 100% of the loan’s principal reduction; 100% of the beginning equity (the house was worth quite a lot more than the entry price we settled on)…and–if there IS any–I get 50% of the future appreciation profit on sale, after having saved a $70-80,000 down-payment and most regular closing cost expenses.

Are ther other ways? Are there better ways? I don’t think so, but I could be wrong ('happens now and then).

Bill Gatten