MarkinKCMO and others, what do you think of thisl? - Posted by Carey_PA


#1

Posted by JPiper on January 14, 1999 at 13:20:26:

My view is that retail flipping is quite simple IF you have structured the correct terms. These terms would be owner financing in some form, or lease/options.

JPiper


#2

MarkinKCMO and others, what do you think of thisl? - Posted by Carey_PA

Posted by Carey_PA on January 13, 1999 at 12:24:07:

Hello all,

Mark, I put your name at the top because about 6 months or so ago we talked about this property. When I called the guy about his house for sale he said he had just rented it, but he’ll call be in January before he puts it on the market so I can have the first shot at the house.
Here are some details:
Loan on the home is 84,000

He spoke to a realtor and she is going to list the house at 79,000. (this seems accurate for the area)

He wants me to assume his loan of 84,000 and he will put 10,000 in escrow and after 6 months, I can do with the 10,000 what I please.

Now, I am a NEWBIE, but I’m pretty sure I don’t want to assume an 84,000 mortgage when the home isn’t even worth that. Right? (BTW, this would be an investment, not a personal residence).

O.k., o.k., so I asked him the QUESTION, “If I could offer you all cash, what would you sell the house for?”

His response was that he’s not interested in my cash, he wants someone to assumme his 84,000 mortgage, that’s all.

BTW, his mortgage is 760/month and he’s charging 750/month rent.

So, anyone want to comment?

1 more thing- let’s say I offered him 50,000 cash (that I don’t have) and he excepted that, you pays the other 34,000 that he owes? Does he still owe that on the home? Do I owe that? And whoever owes it, what would the term for that remaining 34,000 be? (you know technical jargon)

Thanks,

CAREY


#3

OK, Here’s what I would like to do… - Posted by Carey_PA

Posted by Carey_PA on January 14, 1999 at 15:01:22:

I appreciate EVERYONE’s thoughts on this deal, but I would really like to get in and get out of this deal ASAP!

I know that I have to tie the house up with a contract and I’m going to look over my contracts tonite, but I’m going to need help with the paperwork (anyone of you that knows me knows that dealing with contracts is my weak point).

Jim Piper, when you say the $10,000 needs to be secured by something to insure receipt what exactly does that mean?

Do I have to hold onto this property for 6 months no matter what to get the 10K? I would think so, right?

And then I would assign it to a retail buyer?

Mark, can you e-mail me your #?

Thanks again everyone!

BTW, I WILL NOT be in the chat room tonight, my work is sending everyone home now! So I only worked 2 hrs and I’m getting paid for a full day, I’ll take it for NOW.

CAREY


#4

what do you think of thisl? - Posted by Bud Branstetter

Posted by Bud Branstetter on January 14, 1999 at 01:05:27:

One approach that has not been brought up is checking with the mortgage holder to be sure they are aware that it is upside down. Most will not do anything but there is always a chance.

If the property is listed make sure you are excluded from the agreement in case you do find a win win.

What I really hear is that he cares about his credit. He wants debt relief by someone assuming the mortgage. The cash is only going to be there when you take it out of his name. Whether you can convince him to do a lease option or not may depend on your negotiating skills. If he wants it out of his name so he can get a new mortgage then put it in the land trust and do a contract for the beneficial interest. With the contract for deed many mortgage companies will not count it against him for a new loan. When you can help him solve his problem you will get that cash. You could even guide him and help him set up the whole thing. 5K to you and 5K to reduce the mortgage balance.

You do not say how old the loan is so we will believe that a negative wrap with a higher interest rate is not available as an option.


#5

Do the Deal!!! - Posted by David Alexander

Posted by David Alexander on January 13, 1999 at 16:56:50:

How bout’ this.

Carey the steps are basically.

Tie up the property first, with a contract.

Check title. See if the house needs work, etc.

If everything checks out, Create a trust.

Warranty Deed the property into a trust.

Record that.

Sell the House with Owner Financing, Contract for deed, etc.
(add a point or two of interest, that will give you
a monthly spread and a good back end because the your loan to them will pay off slower, than the loan you are paying on.)

Use the 10k to buy or create more notes, maybe about
four Lonnie deals, which would give you about 800-1000
a month in income.

You now have a good front end- 3-7k down payment

You have a good middle cash flow from the property
50-125 a month plus the extra paper deals with the 10k.

You have a good back end with the underlying loan paying down faster than the loan you made you would pick up some extra cash, probably in the neighorhood
of 1-5k depending on when they refinanced.

You can always encourage refinancing or sell the mobile home notes for a profit, and then go do it again.

David Alexander


#6

MarkinKCMO and others, what do you think of this? - Posted by Mark R in KCMO

Posted by Mark R in KCMO on January 13, 1999 at 15:02:32:

Carey,

I agree with piper on what you should do as one option.

This person has no interest in cash, he is wanting to get rid of the 84K mortgage and move on.

This situation occured in the houston market a number of years ago, an it can be a money maker if handled correctly.

Let me see if I get this straight:

84K loan less 10K from escrow in 6 months that would result in 74K effective price for a 79K property.

Here are still a few things that will change the value of this deal, is there a Balloon on the loan, and how long is the term of the loan, is there 25 years left, 20, 10, 5…??

I am assuming that the balance of the loan is 84K and not the orignial face value.

My method of creating a profit, might differ from others, but hey what can I say, I’m strange. LOL
I would offer to sell the house on either a “wrap mortage” or a “contract for deed” for full value of 84K.

No Bank Qualifying, low down, etc…

I would tie up the property, for as long as the owner would allow you to. Then go find a buyer with fair credit, that doesn’t have the 10% down that many think they need. I would make the payment to be the same as the note payment or just slightly higher.

I then would take the 10K and go shopping for a note and buy it at discount.

That investment should throw off about 180 or more, a month income for the next 10 or so years, plus the small difference each month on the mortage, then when the original mortgage is paid or the owner wants to refi, you get the spread between what is owed on the orignal mortgage and they owe you on the mortgage that you created.

For example if this note is non-qualifiy assumable that makes it over 10 years old.

Take a look at an amortization chart and see how quickly the original note balance drops and how slowly your note balance drops.

Anyway back to my point, when the 20 year run out on the orignal mortgage you will have 10 Years of 760 per month coming in.

The numbers change when there is an early payoff, but you still benefit from the spread between the 2 notes.

I’m glad to see you on the site!! I hope everything is going well for you!!

Hope this helps

Mark R in KCMO


#7

Why is he going to give you $10K? - Posted by John (KS)

Posted by John (KS) on January 13, 1999 at 14:10:39:

Why would he be giving you $10k in six months? It seems to me you should be giving him something. Newbie here, just confused.


#8

Re: Follow the Piper! - Posted by DJ

Posted by DJ on January 13, 1999 at 14:07:15:

Carey,
The technical jargon for the 34k is "remaining balance"
which means you’re not gonna get the deed until it’s paid. Unless the seller’s desperate, I doubt very seriously that he will put 34k with your 50k just so you can get a deal! Better consider the escrow offer
as Jpiper advised! Then sell your contract!
DJ


#9

Here’s a Thought… - Posted by JPiper

Posted by JPiper on January 13, 1999 at 13:18:12:

Carey:

Why persist with attempting to offer a guy an all cash offer when you?re dealing with someone who is offering you terms??

What?s wrong with taking the loan over subject to in a trust, taking the $10K, and assign your position ex the $10K. This puts an assignment fee in your pocket. At that point you want your seller to execute a release of liability.

There are some technicalities to all this, so you might want to discuss this in detail with your attorney. Looks to me like you could put $13K-$15K in your pocket.

JPiper


#10

Re: OK, Here’s what I would like to do… - Posted by Redline

Posted by Redline on January 15, 1999 at 13:18:47:

When JPiper said it should be secured - he means this: How do you know (for sure) you will get $10,000 in 6 months? Because the seller told you? This is obviously not good enough. The seller needs to give you some kind of colateral from now until then to keep you happy while you wait for your payday. Something of value that you can use later if he doesn’t pay up.

The way I read your post, NO you don’t have to hold on to the property for 6 months to get paid. It just sounds like he won’t have the $$ for 6 months.

Yes, you’ll have to assign to a retail buyer (someone who likes the house and wants to live there).

RL


#11

Re: Do the Deal!!! - Posted by JPiper

Posted by JPiper on January 13, 1999 at 21:24:37:

David:

You’re awfully eager to stay in a deal and take the risk and exposure of an overpriced property. Why not simply assign the deal, take your assignment fee and the $10K and go on down the road??

You can do mobile home deals if you would like, but they have nothing to do with this particular deal.

JPiper


#12

Re: MarkinKCMO - Posted by JPiper

Posted by JPiper on January 13, 1999 at 21:21:22:

Mark:

Here’s a problem I have with your suggestion.

Why would you want to do a “wrap mortgage” or “contract for deed” on a property where you are in it for an amount in excess of market value?? Isn’t that kind of risky?

You can do this deal by simply assigning it to a retail buyer, thus eliminating all risk of an overmarket deal…and at the same time putting the $10K in your pocket if it is handled correctly.

Further, your idea of buying notes,etc. sounds fine, but has little to do with this deal. What you’re suggesting is what to do with the profit. Why not concentrate on making the profit first??

JPiper


#13

Hey buddy, how are ya? Ok, here we go… - Posted by Carey_PA

Posted by Carey_PA on January 13, 1999 at 15:52:22:

Mark,

O.K. I’m confused… :frowning: Sorry.

When you talk about the investment throwing off about 180 a month for ten years, what are you talking about?

Are you talking about renting the home out?

And when you say go shopping for a note…you mean just shop for somebody else’s note and be a note buyer and collect somebody’s rent, etc?

I really need help with this one. I want to do this deal, CAN ANYONE WALK ME THROUGH STEP BY STEP, and I mean step by step from the conversations with the current owner and trying to explain what I want to do to conversations with anyone!

PLEASE!!!

CAREY

P.S. I’ll probably be in the chat room tomorrow night, because I’m going back to 2nd shift. I have to do this deal quickly (at least get the ball rolling), because I’m going to Disney World next week!!! :slight_smile: I’m excited, I’ve never been there.

P.P.S. When you start talking about wrap around mortgages, etc, I get really confused.


#14

Re: Why is he going to give you $10K? - Posted by Redline

Posted by Redline on January 13, 1999 at 14:17:47:

He’s offering $10k in 6 months PROBABLY because of some or any of the following:

  1. He’s got to get this mortgage off his hands NOW.
  2. RIGHT NOW.
  3. How else can you sell a house a few dollars overvalued RIGHT NOW?
  4. He’s probably coming into some cash in 6 months and so he’s offering to sweeten the deal for a fast sale (see #2).

RL


#15

Re: Here’s a Thought… - Posted by David Alexander

Posted by David Alexander on January 13, 1999 at 16:57:16:

Jim,

Why not stay in the deal and create a good back end?

David Alexander


#16

Jim, walk me throuh here… - Posted by Carey_PA

Posted by Carey_PA on January 13, 1999 at 13:56:21:

Jim,

Please have patience with me, but are you saying to sign a contract for the property (what does subject to in a trust mean) I understand subject to’s, they’re basically escape clauses right? But I didn’t quite understand in a trust. So, get the house under contract with a subject to “in a trust”, then wait the 6 months, get the the $10,000, and assign my "assumable " mortgage to someone else?

In 6 months, the loan will still be bigger than the actually value of the house, would someone, still be interested in that?

I value you thoughts, please comment.

Thanks.

CAREY

p.s. I would assign it to someone who wants to live in the house, right? An investor would really want it would they?


#17

Re: MarkinKCMO - Posted by Mark R in KCMO

Posted by Mark R in KCMO on January 13, 1999 at 23:00:03:

Piper,

Read my comment again, I said I agreed with your suggestion as one option.

Before one can determine if it truely if it is upside down it need to be determined what the numbers are and to at that point determine if the “over value Risk” is real over value.

If the General area rates are at 79K who says that the real comps for this specific wouldn’t be within a 5%-10% range and still be true.

Is it 70K 79K 80K?? or in fact is it 84K??

To me that is the first step. Just as I don’t assume any seller knows the value of thier home, I know that terms will sell.

I also agree that profit is made going into the deal, I want to determine what the exact profit potential is.
At this point in my opinion it is too early to blindly take the 10K in 6 months and say that is the whole deal there isn’t anything else of value there, or it is too risky. At this point we don’t know that the property including the 10K is over priced could the property be only worth 60K??

Why not rehab the note instead of the property?? What is the difference? What would the situation look like if you offered early pay off at a discount?? What does that do to your yield?? Your income stream?? Your profit??

I will stand by my advice to get the numbers, and at this point to plan on tieing up the property for a profit, but don’t act without numbers in hand.

If you only have one option you don’t have a choice.

Hope that I have made my opinion clear.

Mark R in KCMO


#18

Re: Hey buddy, how are ya? Ok, here we go… - Posted by Mark R in KCMO

Posted by Mark R in KCMO on January 13, 1999 at 17:49:25:

Hey Carey,

The 180 or so a month would be income from the note that you bought for the 10K cash that the guy paid you to take the house.

My Idea was to sell to an owner occupant that needs a place an is more concerned with how much down and How much a month than they are on the price.

When I say go shopping for a note, Yes I mean that you purchase someone elses note that was created on another property. You would then collect these payments from thier buyer. When they pay thier mortgage, they will be paying you because you will be the mortgage holder!!

Carey Sure I will be happy to walk you though step by step!

To make it easier on you I will go one step at a time.

The first step is confirm what the numbers are:

We need to know, when the original loan was created, and confirm the remaining balance of the loan to make sure that it really is 84K.

Assuming things are as you discribed then on to step 2.

The 2nd step is to tie up the property with no money or like $10 to $100 to the seller. Ask for as much time that he will give you to close the deal. Ask for 60 - 90 days. Don’t accept less than 30 days.

I don’t remember If you have my phone numbers, give me a call and I’ll help you to understand the steps. Of course E-mail works too.

I Know that you will enjoy Disney World, It’s one of my favorite places!! (Although I haven’t been there in years)

Look forward to catching up with you in chat!!

Mark R in KCMO


#19

Re: Here’s a Thought… - Posted by JPiper

Posted by JPiper on January 13, 1999 at 21:04:04:

How do you “create” a good backend on a property that’s evidently 5-10% overvalued??

JPiper


#20

Re: Jim, walk me throuh here… - Posted by JPiper

Posted by JPiper on January 13, 1999 at 21:13:56:

Carey:

Redline has pretty much explained the concept to you.

You can deed the property into a trust. The purpose of this is to avoid a due on sale clause.

You now assign your position to a third party buyer…yes he will be a retail buyer. You will receive an assignment fee for this.

You need to solidify the $10K issue. This needs to be secured by something to insure it’s receipt. Why is the payment made in 6 months??

And of course, you need to do all the checking you would normally do, both on the property and the title.

I would not stay in this deal, because the deal has no equity. I would want to assign the deal.

As to other suggestions on buying notes, doing mobile home deals…understand that these type of things have literally nothing to do with this deal. Concentrate on this deal…not all the flashy things you’re going to do with the money.

Finally, seek out a lawyer to help implement the security of the $10K.

JPiper