Posted by Ronald * Starr(in No CA) on August 30, 2003 at 20:29:12:
Bob–(IL)-------
Please revise your thinking. “Losing” a deal no biggie. To get into a bad deal. That is a biggie.
Far better to pass up two good deals because you are cautious than to get embroiled in one bad deal because you were not cautious.
You never need any particular property. You never need to buy any particular property. You never need to make any particular deal.
Good Investing********Ron Starr*************
Possible deal, best option? - Posted by Bob (IL)
Posted by Bob (IL) on August 30, 2003 at 12:21:29:
I have a very motivated seller who needs debt relief. He has a house with a FMV of 190K. He owes 126K on his mortgage. He owes 13K in credit card debt. He said he would sell for 164K, however he would like to keep/stay in the house. Here’s my possible offers:
Quick all cash offer of 139K. This pays off the mortgage and the debt but doesn’t keep him in the house.
I purchase the house for 164K. I can get 90% financing which would provide ~148K and would owe the seller 16K down. I would sell the house back to him on a land contract (I keep the deed) for 180K with 20K down. My financing would be roughly $1300 per month PITI. He can afford $1500 per month. So I structure it so he pays the 1500 per month for 5 yrs and the then balance is due, he can refi. This allows me to get my 16K plus 4K in my pocket. Also a nice 200 per mo positive cash flow. Question? Since I have the deed, I pay taxes and insurance correct?
Similar to #2 except I lease option in back to him on a 36 month LO for the 180K, 1500 per mo. I’d take 16K as option consideration (I get my down payment back) and apply 100-200 per mo towards the down payment. In this case I get my money when he exercises the option.
Given his situation and desire to stay this is what I came up with. What do you think? Any other suggestions?
Re: Possible deal, best option? - Posted by Brad (CA)
Posted by Brad (CA) on August 31, 2003 at 01:49:37:
I agree with Ronald about passing on some deals. I would much rather pass on a shaky deal then get into an expensive lesson.
Anyway, a point to think about in either case. If you use a Land Contract to sell to anyone, they would have a vested interest in the property and would have more legal rights to the property then if they were just a tenant. They could cloud title if any problems arose. A lease/option would probably make more sense, if you did a deal like this.
Re: Possible deal, best option? - Posted by Ronald * Starr(in no CA)
Posted by Ronald * Starr(in no CA) on August 30, 2003 at 13:51:48:
Bob–(IL)---------------
How about you just get the $148K loan and he gets all cash left over after the closing costs?
Sounds good for you. If he doesn’t like it, he can try to get somebody else to help him out.
Good InvestingRon Starr********
Re: Possible deal, best option? - Posted by Rob R
Posted by Rob R on August 30, 2003 at 13:04:32:
Bob,
Not to be a smarta** but - if the owner already has money problems why would debt relief change him? I am all for helping people and giving them a second chance but I do not believe in letting the owner stay in their house if it is going to foreclosure. Also, why can’t HE refi and then with the equity pull enough out to payoff his cc debt? Just another thought that has me concerned about him staying the house.
My $.02
Rob
Re: Possible deal, best option? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on August 30, 2003 at 12:49:31:
Bob–(IL)---------------
This is not a motivated seller. He wants too much.
I strongly advise you against any structure that promises the current owner that s/he can become an owner of the property again in the future. You definately should consult with an attorney in your area who is very knowledgeable about foreclosures and the case law related to them. I don’t know your local law.
My advice is based on what can happen here in CA. Here, if you structure the deal with the former owner having a chance to reacquire the property there is the probability, should you end up in court, that the judge would see this as being a loan, with the deed to you being treated as a “hidden security instrument” rather than a real sale. If that is so, the terms of the loan have to comply with the state usury laws which limit how much interest can be charged on a loan. If the interest is too high, the judge can knock down the interest paid to the legal level, can eliminate all interest, so you get none, or, I believe, even declare that you forfeit the money that you loaned. And, if you have agreed to buy and resell to the former owner, you probably have a large profit built in. That being so, you certainly will be violating the usury limits.
Your state laws may be different. But you need to know that before you do anything like that.
Are there any MI laws similar to our CA “home equity sales statute?” This is a law which restricts dealing with property occupant-owners who are in foreclosure. It has a lot of restrictions which most people would not think of and which could cause extreme financial distress for the buyer should there be a court case involving the sale. Again, if you don’t know about any parallel laws in MI, you need to consult with an attorney. Same for our “foreclosure consultants” law. Is there anything like that in MI?
Virtually every person in foreclosure wants to keep the house. That is a given. It just is not reasonable, at least for the investor who is going to help the owner. Joe Kaiser has a technique which he uses involving taking a partial ownership, but only when there is very high equity to value ratio, which is not the case here.
If you don’t know the laws about forelcosure in MI, I’d recomend you either get out of the preforeclosure arena, learn the laws, or start consulting with a very good attroney.
Preforeclosures are not a good place for beginners to start, in my opinion.
Good InvestingRon Starr
Thanks to all for advise! - Posted by Bob (IL)
Posted by Bob (IL) on August 31, 2003 at 09:18:10:
I’ll be making an offer today where I just buy the house. If he wants to lease back, all the better. If he doesn’t like the offer, Oh well. I have other offers to make today.
Thanks again!
Re: Possible deal, best option? - Posted by Bob (IL)
Posted by Bob (IL) on August 30, 2003 at 17:53:19:
Ron,
That’s what I was thinking.
Thanks,
Bob
Re: Possible deal, best option? - Posted by Bob_IL
Posted by Bob_IL on August 30, 2003 at 13:14:52:
He’s not in foreclosure yet. His credit is shot. I thought about offering a “subject to” deal but since he wants to stay, that’s wasn’t an option. Maybe I’m trying to be too nice and just tell him here’s the deal. “Subject to” is still an option but I’d have to come up with the 13K to get him out.
Re: Possible deal, best option? - Posted by Bob (IL)
Posted by Bob (IL) on August 30, 2003 at 13:08:16:
Ron,
Thanks for your insight on the usury law. If noone here knows for IL I’ll check with an attorney. The seller in this case is not in foreclosure yet. He assured me that his mortgage is current, however, he had to withdrawl from his retirement account to make his most recent payments. Maybe my best offer would to just let him lease back from me. If sometime in the future he wants to buy it back, we could come to an agreement then.
Re: Possible deal, best option? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on August 30, 2003 at 13:35:41:
Bob–(IL)---------------
Are you sure you want to be a real estate investor?
To me, you don’t sound like you have the instincts for it. At least for any kind of agressive approaches.
You say:“If sometime in the future he wants to buy it back, we could come to an agreement then.” I can’t conceive of a highly successful real estate investor ever suggesting doing it that way. NO. Make all of your agreements up front. When you have more leverage.
You might be ok as an ordinary buy/hold/rent investor. But I think what I hear from you is somebody who should not be trying to do dealmaking, negotiating, quick turn properties.
And that is not to belittle buying and holding or not negotiating. I do buy and hold investing and don’t much like negotiating. So I see nothing wrong with them. Different approaches for different investors, as I try to point ou to those who read my post for beginners, which can be found by putting “beginners success” into the search function of this main board of this CREONLINE.COM website.
Good InvestingRon Starr***
Re: Possible deal, best option? - Posted by Bob (IL)
Posted by Bob (IL) on August 30, 2003 at 17:56:41:
|Are you sure you want to be a real estate investor?
Absolutely! I guess I just didn’t want to risk losing this deal. SW, SW, SW, SW.
Bob