No equity, current on payments... what to do? - Posted by Beth Hubbard

Posted by Sean on June 16, 2006 at 11:28:16:

I’d be hesitant to lock up any property where the owner is willing to walk, and you are going to be relying on him to make a differencial payment to the bank above and beyond what you are paying him monthly…

If he’s ready to walk, that differential payment, if not the entire payment is going to be the first bill he doesn’t pay if his financial situation changes or he just decides hell with it.

Is there an opportunity there? Sure… but if he stops making that payment and your tenants get the eviction/foreclosure papers because the banks taking the house… what’s that make you look like? Yea, you aren’t legally on the hook, but those tenants just forced to move because of this are going to bad mouth ya for decades…

I lease option, we send the full payment to the bank and send copies (if they want them) to the owner.

I know this technique can be done, but its probably not one I’m going to do… see if he can refi to a lower payment… if so, and its less than rents… go ahead with the L/O.

Just my take.

No equity, current on payments… what to do? - Posted by Beth Hubbard

Posted by Beth Hubbard on June 13, 2006 at 15:49:00:

The other day we were driving through our neighborhood and saw a house for rent. The house is in good shape but the yard looks about two months overgrown. On closer inspection we noticed the front door appeared to have been torn up from a break-in. We took down the owners number as it was a different area code and we thought they might want to sell. As luck would have it, the owner IS interested in selling… the house has been a nightmare for him and he would love to dump it. We could probably take over payments and he would walk but we’re concerned because the payment is about $700 more than what the rentals in the area are going for. There is no equity in the property, perhaps even negative equity. Is there a way to help this guy and make some money ourselves or should we walk away?

How much love? - Posted by Joe Kaiser

Posted by Joe Kaiser on June 14, 2006 at 12:30:37:

Love to dump it . . . a good thing. Whenever a seller is passionate
about moving on, there’s often room there to make things happen.

You have the classic lease option situation. You “buy” it on a lease
option and you create whatever payment you can get away with. His
payment becomes virtually meaningless, provided the payment you
both agree on is an amount he can actually cope with.

The $700 negative isn’t his problem. His problem is the 100% vacancy
and the tenant trouble. You can solve the vacancy and tenant thing and
in the words of Meatloaf, two out of three ain’t bad.

So, you write it up with a long term option and a short term, renewable
lease that gives you sufficient cash flow to make it worth your while
(and his).

Odds of pulling it off?

1 in 7. Which, frankly, is pretty good.

Again, the classic spot to employ the good ol’ lease option deal.


Re: No equity, current on payments… what to do? - Posted by Berno

Posted by Berno on June 14, 2006 at 09:08:46:

This sounds like a terrible situation. You would be buying for 100% of FMV (assuming that the amount owed is in line with the true FMV). That’s enough to stop thinking about this place right away. The only saving grace would be if the property had good cash flow, even if purchased for FMV (it happens in some areas). Looks like that’s not there either though. It doesn’t appear as though lemonade can be made of this lemon.

No equity, no opportunity for cash flow… - Posted by Lyal

Posted by Lyal on June 14, 2006 at 07:48:04:

no upside potential = no reason to spend any more time on this.