offer suggestions? - Posted by rayrick

Posted by Reif on April 10, 1999 at 23:22:13:

I agree with Mike. The noteholder would be my first choice.

If no luck there . . .

Your rents ($1100 best case) only give you $100 positive before fixing the faucets. Not sure that it’s enough.

So . . .

One question is - what’s FMV?

Next - if $100/month is enough, will she let you take over the payments?

If not, and you can’t get a discount off the noteholder, how about getting some equity on a wrap?

My thought is, pay her the exact same amount (719) per month on a longer term loan. See if you could keep the interest rate 7%.

Then say, “Look, I’ll take over your payments, and give you a 80K wrap. So you won’t lose any money, and when I get cashed out, you’ll get all your equity.”

Play with the numbers. Higher price, longer term. Lower interest rate, shorter term.

Then maybe sell it with 10-20% down owner finance on a re-wrap at 8%.

I don’t know - the only problem is you still have skinny cash flow - and so will anyone who you try to sell it to.

But maybe someone will like a low down deal, even with a small negative. I did it once :frowning:


offer suggestions? - Posted by rayrick

Posted by rayrick on April 10, 1999 at 13:48:06:

I just talked to a woman who called my voicemail and I think it is a situation with potential. I’m looking for suggestions on ways to handle it.

The house: 2 family, FMV 110K, don’t know the rental rates (doh!) The non-owner unit has been rented to the same couple for 25 years and they always pay on time.

The situation: Her engagement broke up and she’s stuck with this house and has no interest in doing repairs or being a landlord. She has already bought a condo and is anxious to move in.

The financing: She owes 68K on the house and it is a private mortgage from the previous owners. I don’t know the terms of the note (doh again!) My guess is they’re pretty decent, since she said the previous owners are friends of the family.

So, I don’t think she needs a lot of cash. I’m probably more interested in flipping the property than holding it.
Now I know Joe Kaiser would say “Don’t make any offers! Find out what the seller needs and figure out a way to give it to them and still have it work for you!” Still, some suggestions would be helpful. She seems resigned to taking some sort of a loss on the place, but I doubt I could low ball her much. More interested in being out from under the payments and reponsibility, methinks. Thanks in advance for the suggestions.


Here’s my plan… - Posted by rayrick

Posted by rayrick on April 11, 1999 at 13:01:18:

After verifying FMV and market rents (I think they could be as high as $700-800), I’ll just see if I can get the seller to discount it a bunch. If so, I’ll get it under contract with a contingency of some sort, and then negotiate with the noteholder for a discount. If I can get two decent discounts, I end up with a big discount. Then I’ll try to flip the deal to another investor. Thanks to Jim Piper for this suggestion in the chat room.

the tricky part for me is flipping a deal where one of the key things that would make it good would be the willingness of the note holder to discount. Do I try and get something in writing from them? Is just a verbal expression of interest enough to get an investor to bite on the deal? Would they be likely to accept a discount if they know that the house is for sale and they might get cashed out anyway?

I guess a key is whether or not the note has a due on sale clause. If it doesn’t, then I could make it appear that there is a very real possibility that I will just take over the note and NOT cash them out.


Re: offer suggestions? - Posted by mike

Posted by mike on April 10, 1999 at 21:27:21:

the note holder can take other collateral that you find/buy/create at wholesale, giving you the spread. he can subordinate to a new first, giving you the chance to refi for the down pmt and fix up, etc, lots of flexibility. go forth and be creative. focus on note holder, get best deal you can from the seller both.

Okay, here’s the REAL info - Posted by rayrick

Posted by rayrick on April 10, 1999 at 15:41:45:

First, allow me to apologize for my first post. Kind of a waste of space without the info that I’m including below. My excitement got the better of me.

Okay, here’s the missing pieces:

The note: 15 yr, 7% interest, seller is about 4 years into the term. Payments= $719/mo and with taxes and insurance, the total monthly obligation is around $1K. Remaining balance is 68K. Have no idea if note holders would discount, and the fact that they are friends of the seller could make it hard to discuss anything with them discretely.

The rents: the lower apartment is rented for $475. This is below market ($600?), but the folks have been there 25 years and always pay on time, so I’d be a little reluctant to jack it way up on them. They told the seller they’d still stay if the rent didn’t go above $500.

the seller paid 110K 4 years ago and the market’s been pretty flat since then. She just put it in the paper for $109K.

So, now you have the whole picture (I hope!). Thanks.


Re: offer suggestions? - Posted by Tim Jensen

Posted by Tim Jensen on April 10, 1999 at 15:20:41:


Why not come out and ask her what she needs for the place. Maybe you could work out a deal where you give her some cash.

Also, I would find out more details then post the details and that way we can help you better.

Tim Jensen

Re: Here’s my plan… - Posted by Alex Gurevich, TX

Posted by Alex Gurevich, TX on April 12, 1999 at 08:49:48:

It seems there are still some important pieces of information missing, but you have already made up the strategy. It appears, the rents and market value would be the most critical points in understanding what you can do with the property. The market for duplexes is quite different from a single family homes market. With rents of 700-800 I could see how the place could be worth 110K, or so to an investor seeking cash flow. But from 500/side to 800 is a long stretch. Since your market is flat it’s unlikely investors will be buying a break even or slight negative hoping for appreciation. With rents low as they are your resale price to a cash flow investor may be limited to something under 80K. There are usually less people buying 2plexes to live in than investors buying to hold, even though a duplex is considered an SFR by most lenders. It may be difficult to find a buyer occupant who’ll pay more. It seems a survey of rents charged for surrounding duplexes of similar size is mandatory.

When you negotiate discounts, once you’ve established what it is verbally on the phone, you must immediately get in in writing, otherwise it’s nothing. If the note holders know the house is for sale they are unlikely to discount, unless they happened to be desperate for money.
Assumability of the note: why don’t you just ask the seller for a copy of a deed of trust or mortgage from their closing folder (or look it up at the courthouse) and review it so you know for sure.

A little preparation will only improve your chances of not making a silly mistake.

If you do negotiate a discount with both seller and lienholder, perhaps, it’s time to quickly find a hard money lender. You should develop an ability to close yourself on a good deal, in case your buyer does not perform as promissed.

Re: Okay, here’s the REAL info - Posted by Tim Jensen

Posted by Tim Jensen on April 11, 1999 at 09:55:31:


I think I would pass on this deal. It looks a littel too skinny. Now if you could pick up the place for the loan balalnce and just refi it then you might be in business

Tim Jensen