need some suggestions- is this a deal? - Posted by Matt B

Real Estate Investing
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Posted by Stacy (AZ) on May 07, 1999 at 21:08:40:

What can I say, Bud. You’re right. I looked over my suggestion for this deal, and it basically comes off as stealing all the equity from a poor old lady…never my intention in real life. I’ve got to admit, the deals that come across this board start to all look like math problems, and of course this is a real person we’re talking about. Anyway, you raise a good point, and I know if this was my deal, I wouldn’t be able to sleep at night if I thought I didn’t give this woman a fair shake.

But, if there really is a substantial risk in being able to get FMV for the house (as implied), the amount of profit I would be willing to share would have to be compensated by this risk. I’m not sure I would spend my time brokering a note, and getting only a broker’s commission out of the deal, but I think splitting the profits would be fair. Anyway, thanks for the reality-check. I appreciate your experienced advice!

Stacy

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need some suggestions- is this a deal? - Posted by Matt B

Posted by Matt B on May 07, 1999 at 14:07:15:

I went to take a look at a house yesterday that I’m not sure how I want to handle. The seller is a 65 year old widow who kept repeating to me that she “just wants to sell it FAST”. After doing some research, here’s what I have…

It’s a 5 bedroom, 2 bathroom house. Comps come in at the $55-60,000 range. She has a home equity loan open on it for $19,600. She said that she has to get enough out of the house to pay off a number of debts (which she showed me) equalling $14,745. She had listed the house through 3 different agencies for a total of 2 years. She had even brought the price all the way down to $39,900 with the last listing. (It was listed with an exclusive agency that didn’t use the MLS and never brought anyone to see the house, however.) It is located between a low income area and an upper class area. She thinks it hasn’t sold because of its proximity to a low income area. It is in great shape. It is a nice large house with everything very new looking.

I am not sure if I can do something with this or not. I would assume that the bank would have a real problem with a home equity loan being taken over than a mortgage, so I probably wouldn’t be able to “subject to” the place. Also, she must have the $14,475 to pay off her bills in order to be able to move. If she has been unable to sell it retail, I’m not sure I would be able to flip it either. I’m running this through my brain and not coming up with anything solid. Can anyone suggest a way to make a deal with this?

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Re: need some suggestions- is this a deal? - Posted by breeves

Posted by breeves on May 07, 1999 at 18:48:59:

Go to www.housemax.net and read how to help her sell with owner financing and get her cashed out at closing and you get a profit as well.

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Mother’s Day and Greed Glands - Posted by Bud Branstetter

Posted by Bud Branstetter on May 07, 1999 at 16:44:14:

I am not saying that what has been suggested is right or wrong, but look at it from the aspect that if this was your mother. Are you taking advantage of someone because of their age or mental condition? Would their children agree that this was an appropriate price?

You could help her sell by using the owner financing arrangement. Cash her out with a fair return and make yourself some money brokering the note. She could even get some income from the second. If she wanted to sell some of it later I’m sure she would call you.

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Re: need some suggestions- is this a deal? - Posted by JohnBoy

Posted by JohnBoy on May 07, 1999 at 14:40:16:

The home equity loan is a mortgage. Usually secured by a second mortgage because a first mortgage still exists on the property. In this case it sounds like the home was free and clear when she took out the equity loan and the bank would have a new first mortgage on it. Just take that over “subject to” like any other mortgage.

What is the other $14k in bills she has from? Credit cards? Medical bills? Etc? You can tell her you will assume all of her other debt also. You can tell her you will secure the other $14k by giving her a second against the property.

Or you can buy the house by her financing it and your payments to her will cover all her payments on her bills.

The question is, how much do all her payments total up to be every month and would the house support those payments from your tenant or buyer and still leave you with a positive cash flow?

Another thing you can do is get the property under contract subject to you finding a suitable tenant. Then offer the house with seller financing to get a buyer in there. Sell for retail with your buyer putting up $5k - $10k down and get them a new first mortgage.

If the home will appraise for $60k, then you can get a buyer that has 5% - 10% down and get them a new 80% first with you taking back a second mortgage for the difference.

80% of $60k = $48,000. With only 5% down from your buyer that will be another $3,000. That’s a total of $51,000 you would have at the closing table.

$60k - $51k = $9,000 that you carry back as the second.

At closing you pay off the seller and pocket the difference plus you have a payment coming in every month on the $9,000 second.

You can get a lot of people financed with credit problems at 80% LTV where they allow the seller to carry back a second as long as your buyer can put down 5%.

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Re: need some suggestions- is this a deal? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on May 07, 1999 at 14:31:49:

It seems she only needs 57% of the equity in this house (34K), leaving you the rest. Should be a deal here!

The Home Equity loan will have to be paid-off. One route would be to create a note for the 57% and sell it at the closing table. At that low LTV, it seems the discount would be low to zero, with the right interest rate.

Then, you could L/O, sell on a wrap, or go for a retail sale with a new loan. It seems the downside risk is low, since you could sell well below FMV in a pinch, and still come out ahead.

Just a quick take-

Stacy

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Half now, Half Later. - Posted by Sean

Posted by Sean on May 07, 1999 at 14:28:54:

Or variations on that theme. First read http://www.creonline.com/mm_35.htm and you’ll see what I’m getting at. I think something like that can be worked out on this deal.

Get financing through a private party for $39,000 now and agree to pay her the balance of $21,000 in 24 months at no interest or payments until then.