Re: Pre-Foreclosures. - Posted by JohnWe (NoCA)
Posted by JohnWe (NoCA) on January 26, 2000 at 11:34:21:
Lonnie asks, “How do I do a L/O on a home that is months in arrears?”
You have to cure the foreclosure by coming out of pocket. Hopefully you can get option consideration to cover your out of pocket expenses. I like wraps better. Here’s an example. You might have to read it a couple times, but it’s worth it. Here’s the power of a wrap…
Here’s what happened 2 years ago. An eager buyer purchases a property for 200K, with a 20% down, borrowing 160K at 8% for 30 years. His monthly payment is $1174.02. Everything’s fine for 21 months, then the guy gets laid off. He hasn’t made his payments in 3 months, and the bank is foreclosing. Right now he needs about $3500 to get paid up (3 months past due plus penalties).
Now you come in and take the property subject to. First thing you do is cure the foreclosure for $3500. Now you advertise the property like this…
Own Your Own Property Today! Only 22K down and less than $1750 per month. Owner will finance, no qualifying, bad credit ok.
Here’s what you’re doing. You’re wrapping the property for $220K with a 10% down payment and 10% interest for 30 years. The payment to the new buyer would be $1737.59 per month.
Here’s a summary of your situation…
Cash Out: $3500
Cash In: $22K
Net Cash Position: $18,500
Monthly Payment Out: $1174.02
Monthly Payment In: $1737.59
Cash Flow Per Month: $563.57
You collect $563.57 for 28 years, then a full $1737.59 for 2 years after that! More than likely though, your buyer will refinance, so you’ll collect a few payments, then get a $38K bonus. (198K - 160K, difference of payoff for new loan vs. old loan).
So, you want to make this a no money down deal? No problem. Find a partner, and split the cash flow. Explain to them that for a $3500 investment, they’ll get $281.78 per month for 5 years, then they’ll get their $3500 back. That is a 97% annualized yield. Where you gonna find that kind of return?
And in the end…life is good!