No Deal - Right? - Posted by Maria

Posted by Brent_IL on March 28, 2002 at 23:18:00:

I would bet that the offers were over the telephone. Sort of a bait-and-switch to get in the door.

If the bank waives the $20K arrears and you refi the $256,000 at 7.00%/360, the property rent minus expenses is still negative.

I don’t think this property is going anywhere for a while. If I wanted to make an offer, I would look for a high-income, highly taxed, passive investor as a partner to cover the negative until rents catch up.

“Dr. Heart Surgeon, I understand that more taxable income is the last thing you need. You can own 50% of this wonderful $300K house for only $10,000 (your initial profit) plus transaction costs. Your monthly payment is only $500.00 a month. Almost every penny of this is deductible, and management is in place (you). When the property is sold, your profit will be taxed at the lower capital gains rate. Press hard, there are three copies.”

At this point I wouldn’t be offering the seller any cash because there is not much play in the deal. The bank will give it to you cheaper after the foreclosure.

No Deal - Right? - Posted by Maria

Posted by Maria on March 28, 2002 at 21:29:05:

I just got a call from a seller from my ad. He is $20,000 (est.) in arrears on his loan of $256,000 at 9 1/2% interest rate. He says the home appraised for $330,000 a year ago. I did a few comps and that price is rather on the high end of what comparable homes are selling for now, which is not surprising considering it was probably an appraisal done for a refinance. The seller would like to walk away, obviously with as much cash as anyone will give him. His payments are $2400 a month, which is quite a bit higher than rents would be going for in the area. I have to check a bit more on this.

Anyway, he claims he has called some of the other ads in the paper and has had one offer for $18,000 to walk away (and he gets to stay till May 1st) and another for $15,000 now and $10,000 next month (he also gets to stay till May 1st). I am assuming they will take the loan subject to. Obviously, he will go with the “highest bidder”. I am wondering what the other investors see here that I do not. I understand getting a home for approximately $20,000 but they would also have to bring the loan current from the $20,000. Would they not? There does not seem to be much equity here even if they do get a $300,000 home for $40,000 they have the existing financing which is pretty lousy. I imagine they could only do a lease option and get prime rental for the area, which still would be quite a stretch.

I would pass on this deal. Am I wrong?

Re: No Deal - Right? - Posted by Bashir

Posted by Bashir on March 30, 2002 at 11:23:48:

That guy is in no position to be waging on the “highest bidder”. You are in a position of strength in dealing with this individual. He is 20,000 dollars in arrears on the mortgage, and I doubt that anyone is going to give him 18,000 cash to mortgage to buy that house. Offer to buy it for the mortgage balance, subject to finding another buyer. Explain to him that when you find the buyer you’re going to create a note to be sold in escrow. Buy for the mortgage balance, sell for 300,000 dollars with 5 percent down(or more). Have a paper buyer who buys unseasoned notes fund the note at closing. 5 percent down on a 300,000 dollar home is 15,000 dollars. Not to mention what you’ll make on the spread between 256,000 and 300,000 dollars after the discount. Even if the paper buyer bought the note at 275,000 dollars, you would still make 20,000 dollars. Let’s see, You collected a 15,000 dollar downpayment from your buyer, and you could make an additional 20,000 or more at the closing table. Your profit:35,000 dollars! You could also give the seller about 10,000 dollars to make it a win!