pre-forclosure 1/3 price not a good deal??? - Posted by Paul (FL)

Real Estate Investing
1

Posted by Paul(FL) on May 21, 1999 at 09:30:07:

JPiper,

This is the way I figured it:
advertisment: 5% of Inc. = $60
Maint :10% of inc. = $120
Mgmt :10% of inc. = $120

Total = $300

Loan pmt PITI = $859
Exp = $300
$1159/mt
This does not
account for
vacancy rate : 10% of inc = $120

Total = $1279
for a neg cash flow of
$79.
If I read you right you are saying 40 % of P&I, not of Income.
This looks like a couple hundred $ diff.
I wonder which closer to the truth?

PS I?m very new at this so I would like to know for my learning experience, but I think it would be better for me to try to flip this one. Also, even though I can come up with the 20k to 30k for down and repair, I don?t think the bank will loan me the $ with my current mortgage, any suggestions there? I would consider a partner, but I don?t feel comfortable asking someone to get in on this when I have never done one.

Paul

2

pre-forclosure 1/3 price not a good deal??? - Posted by Paul (FL)

Posted by Paul (FL) on May 20, 1999 at 20:15:36:

Hi all you smart people,

I’m trying to understand what is wrong with this picture.
The house across the street was selling for 170K. They went down to 150K. This house has been on sale for about three months. It needs about $ 2K in repairs. It is a buyers market now. There are a lot of them for sale. I was thinking about offering 90K and settling for 100K. Rents go for $1100 to $1300. The taxes and ins are $300/mt. @ 7.5% I figure the payments would be about $1150 if I put 20K down.

  1. If I rent it out for $1200. I would get a $50/mt cash flow. But I invested 20K. I know there is some equity, but still…
  2. I already am paying on a loan on my house and was told by a mortgage person, if I was to sell my house or provide them with a copy of a signed L/O agreement that I would qualify for a 170K loan. I pay $1500 now. So I could not afford to buy this, even if I wanted to. If I could L/O the new house before I bought it, I could do it.
    I’m trying to think creatively, with no experience I’m really not doing very well. I?m thinking there is a deal here somewhere. What do you think?
3

Where in FL? - Posted by FJW

Posted by FJW on May 22, 1999 at 17:07:16:

That’s a pretty high median price range for FLA. They should be desirable houses. What’s going on in the area that values are coming down? What’s the balance on the mortgage? They may owe more than 100K and not consider selling short. Why not try subject to and offer a second to the seller instead of putting up so much cash?

FJW

4

Help me to understand - Posted by NJDave

Posted by NJDave on May 21, 1999 at 13:16:29:

You say that it is a buyers’ market, but you imply that there are many houses for sale, and the price (on this house, anyway) has already been reduced by $20,000 while on the market for 90 days… This doesn’t sound like a buyers’ market to me.

If this is a pre-foreclosure (has the mortgage been foreclosed, or do you mean pre-REO) then you may be able to (with Seller’s permission) negotiate for a short sale if the mortgage amount, arrears, f/c costs, tax liens, and sale costs are expected to exceed anticipated proceeds of sale.

5

You Could Flip It! - Posted by Bill K. (AZ)

Posted by Bill K. (AZ) on May 20, 1999 at 20:48:22:

Paul,

To start, if you end up paying your highest price, $100,000, your principal, interest, taxes, and insurance payment on $80,000 would only be $859, not $1,150 as you figured. Second, with 20% down, $2,000 in repairs, and closing costs, you’ll be into this deal for closer to $25,000.

If you can rent it out for $1,200, you would have a negative cash flow. Here’s how I figure that:

Monthly Rent: $1,200
Loan Payment: $859
Expenses: $480 (40% of income)
Total Monthly Costs: $1,339
Negative Cash Flow: $139/month

Now, you don’t say what you think the fair market value of this home is, but if you’re in a buyer’s market, you might want to “flip” this to another buyer. Otherwise, the market may continue to slide. However, if you get this place at a good price, you could probably turn around and immediately sell it to someone else for less than what is currently being asked, but for more than you purchased it for.

Let’s say that you determine the FMV to be $140,000. You buy it for $100,000. Would you be upset if you could resell it within 30 days for $134,000? The numbers are hypothetical, but you get the idea of the flip. In addition, if you start marketing it immediately after you and seller come to agreement on the $100,000 purchase price, you might be able to pull off a simultaneous closing which wouldn’t require you to obtain financing or come up with any money at closing.

Of course, you already came up with the idea of lease/optioning the place. That would work well here too. However, lacking a seller who would lower the price to $100,000 AND go for a lease/option, I’d try to flip.

I hope this helps.

Bill K. (AZ)

6

Re: Where in FL? - Posted by Paul(FL)

Posted by Paul(FL) on May 22, 1999 at 20:11:47:

I’m in the Keys. I don’t really know why, but they seem to building more new ones rather than buying old ones. And yes your’re right, I need to find out what he owes. I don’t think he will take much less than what he owes. I think I’m going to forget this one, but I am curious and trying to learn. How would this “subject to” work?

Thanks for your time and input,
Paul

7

Re: Buyers Market - Posted by Stacy (AZ)

Posted by Stacy (AZ) on May 21, 1999 at 16:05:18:

NJDave-

Just curious, why doesn’t Paul’s description seem to be a buyer’s market?

Stacy

8

Re: You Could Flip It! - Posted by Paul(FL)

Posted by Paul(FL) on May 21, 1999 at 09:28:14:

Bill,
Thanks for the info.
the $1150 I was refering to was:
advertisment: 5% of Inc. = $60
Maint :10% of inc. = $120
Mgmt :10% of inc. = $120

Total = $300

Loan pmt PITI = $859
Exp = $300
$1159/mt
This does not
account for
vacancy rate : 10% of inc = $120

Total = $1279
for a neg cash flow of
$79. How?s this look??

Bill, If I was to do a simultaneous close,
how or when would I do the fix-up?

Thanks, Paul

9

Re: You Could Flip It! - Posted by JPiper

Posted by JPiper on May 21, 1999 at 01:21:17:

Just a quick comment. That 40% expense rate that people use includes taxes and insurance. Therefore, to get the cash flow you’d need to subtract the taxes and insurance from the loan payment…all you need is principle and interest.

The P&I payment is $559…therefore cash flow is $161 assuming the 40% is a good percentage to use on single family homes.

JPiper

JPiper

10

I misspoke - Posted by NJDave

Posted by NJDave on May 21, 1999 at 16:17:50:

Too many interruptions today. Lost track of the post. You are right, the description indicated a buyers’ market. My apologies, and thanks for calling attention to the error.