Need Help! Taming a time bomb? (LONG) - Posted by DanM(OR)

Posted by Jim Beavens on June 02, 1999 at 13:20:50:

A couple thoughts from this newbie:

  1. Have you been in touch with the holder of the 2nd mortgage? Is there any way you could work an extension? (who knows, maybe you’re dealing with a John Behle student ;). Maybe you could pay half or a fourth now and re-amortize the rest. Perhaps prepaying 6 months payments might grease the skids a bit and not only allow an extension, but for you to take the property subject to the loan. Alot of this is easier if the note holder is a private party, but it never hurts to ask regardless.

  2. If he’s as motivated as you say, then just offer him the $59K to take care of the mortgages, especially if you have to come out of pocket for all or part of that $12K. Forget the $8K due in 5 years. If price is that important to him, then you can throw this in later, but I’d start at $59K.

  3. If you have to come out of pocket for more than $3-4K for that second, then forget L/O. The only way you’ll get much more than that from a buyer is if you owner finance or sell on contract. There’s nothing wrong with coming out of your own pocket as long as you’ll immediately make it back upon finding a tenant/buyer.

Here’s the way I see this deal working:

  1. Contact the second mortgage holder and see if there’s anything else he’ll take besides $12K right now.

  2. Take title to the property in a land trust, subject to the first and second mortgages (assuming the seller doesn’t mind having the mortgage(s) in his name…and he might mind now, but call him back on June 29th and ask again).

  3. Sell on a wrap at 5% over FMV. There should be a nice differential in payments based on your equity.

If you have the money available, you might consider just paying off the $12K if there’s no other alternative. This will limit your pool of buyers to those with at least 15% or so to put down in order for you to recoup this, but that isn’t entirely unreasonable. You won’t get much front-end profit, but like I said there should be a nice spread in the mortgage payments.

Disclaimer: As rayrick would say, it’s entirely possible I have no clue what I’m talking about. But hopefully this gets your wheels spinning again.

Need Help! Taming a time bomb? (LONG) - Posted by DanM(OR)

Posted by DanM(OR) on June 02, 1999 at 11:15:51:

Dear CRE Friends,

I need help with a deal I am working on. Here it is:


2/1 Officially (Seller has added 2 bedrooms)
FMV= 77-83k
Last appraisal 1997: 67k
Zoning changed from Residential to C2 Commercial
Assumable 1st of $47k (Qualifying Assumable Probably)
2nd with a balloon due June 30 (this is what the seller needs taken care of) He doesn’t need any money and is willing to work a no money down deal. He is moving out of town and is a major don’t wanter. His back-up plan is a simple refinance, but he doesn’t want to be a landlord. He is positive that $67k is 85% of what it will appraise for.


1st offer:
Contingent on the appraisal coming in at $78.8k
I get an 85% first
I pay off a second of 12k and 1st of 47
Seller carries a 2nd:no interest and a balloon in 5 years for 8k less his closing costs. (he doesn’t want any money out of pocket)

or I could

2nd offer:

Lease option with 12k payoff of second as option consideration. Secured by a performance mortgage.
3rd party escrow to pay on 1st. A 2nd for 8k due in 5 years no interest.
Payments are credited 100% and equal to sellers payment on the first.

Any other suggestions? The second has to be dealt with and is throwing me off. I didn’t want to put any money into it. The only way I think I can do that is buy getting a new first. How do I do this without breaking the rules:

  1. None of my own moeny
  2. No large debt in my name

P.S. I already have a family that is interested in renting or L/O from me.

Thanks for your help!

Dan Matejsek

Re: Need Help! Taming a time bomb? (LONG) - Posted by DanM(OR)

Posted by DanM(OR) on June 03, 1999 at 10:37:49:

Jim & Bud,

Thanks for your input. I really appreciate it.

I am going to contact the seller and try to find out who has the second and if there is a way we can negotiate and extension or if I can get a second from them.

At this point, I think the seller would just be happy to have the debt relief only. That’s at about 59k.

The rents for this place are about $600-695. $650
should be easy to get. Strong rental market here. Would go fast.

I inspected the place yesterday, it is a dump by my standards. I think it would need about $1-2k in clean-up & fixup to get it rentable. All the majors are good (roof, foundation, water heater, furnace). Needs some carpet, lino, and some major TLC.

After 5k worth of work, it would sell for 77-83k fairly fast.

One problem that came up is that since this is a commercial zone now, this property will not qualify for a conforming loan. This probably limits my options and the market for this property.

I’m on the fence, I am not sure I want this as a buy/ hold. I would like to turn it over fairly fast and don’t think I am game for a rehab right now.

What do you think?

Re: Need Help! Taming a time bomb? - Posted by Bud Branstetter

Posted by Bud Branstetter on June 02, 1999 at 20:37:07:

A couple of thought in addition to what Jim had to say. Depending on what state you are in, is it so bad to start the foreclosure process? It could give you time to find the buyer. I would gain control of the property with a contract or option. Check out how that C2 zoning really effects you. I would concentrate on the family that wants to rent/LO. Why can’t they buy? With a little down from them and even their bad credit you could finance with a note. You don’t give rents, repair costs so I will take it that they are not a factor(usually are). At 85% it is more difficult to turn the equity into cash than it is into cashflow.