What do you think I should offer?? - Posted by Johnnybuymore (in VA)

import · September 24, 2003, 11:03pm

Posted by Doug Pretorius on September 25, 2003 at 09:14:40:

I’d tell this seller that I’d like to see pigs fly, too.

This absolutely should NOT be a lease option! Subject to all the way, and the mortgage will be paid off when your buyer refi’s, maybe in a year, maybe not.

Personally there’s no way in hell I would rent the house back to the seller. He can forget his $5k, offer him $1k move money. And find out what’s up with that $5k lien, what was that used for? If it wasn’t used to improve the house then tell him to take it with him!

I’m confused about something … if the house is worth $115k, and he owns about $88k (1st, lien, back payments, fees) and it needs $4k of work, how do you figure it’s got $35k of equity? By my calculations that’s $23k tops, assuming your repair and value estimates are right.

So, to think about this clearly for a moment, you’re talking about paying at least $10k in cash to get $24k in equity (which may or may not be there).

Now let’s compare to how this deal should go down: You buy sub2 for $85k (assuming you can’t get him to take that $5k lien with him), you pay say $2,500 to bring current (I’m guessing at $1k for fees, call the bank to find out) plus $1k at most to help the seller move.

Then you put an ad in the paper that says something like this: “Owner finance! No qualifying! Trade sweat for equity! Beautiful 3/1.5 just needs paint and carpet.”

Offer your buyer either a lower price or less down if they fix it up before they move in.

import · September 24, 2003, 11:03pm

What do you think I should offer?? - Posted by Johnnybuymore (in VA)

Posted by Johnnybuymore (in VA) on September 24, 2003 at 23:03:33:

I just got a call from a motivated seller. He has a townhouse worth $115k, and a VA note with a $80k balance and he says there is a $5k lien. He is 3 months in arears on his mortgage payment (so he owes them about $1,500 + fees) and has received the first letter from the lender moving towards foreclosure. His credit is damaged and he needs a year to fix it, and would like to continue to live in the place.

The place is in good condition, 3/1.5, and will need paint and carpet to make it marketable after they move out(say $4k).

After talking with him he has suggested that he is open to something like this; 1) he’d sign the deed to me (subject to), 2) would rent the place from me for 1 year at 1.2 x (PITI + Condo Fees) per month, and 3) wants some cash soon to fix his car and buy another (say $5k).
One other thing, he wants the first mortgage paid off after the one year lease is up 'cause he doesnt want someone trashing his newly repaired credit.

On the income side;
-there is $35k equity in there
-there is about $130/mo in positive cash

On the expense side;
-$5-$10k in cash to bring mortage up to date, and pay off seller

Risks;

I am on the hook to get the place refinanced in order to unlock the equity

Am I looking at this deal wrong? Should it be a lease option or should I beat up the seller for better terms/ lower down etc?

If its not obvious, this is my first deal, and I want to do it right!

Thanks!!

import · September 28, 2003, 2:29am

Re: What do you think I should offer?? - Posted by jasonrei

Posted by jasonrei on September 28, 2003 at 02:29:21:

Wow. I expected folks to dog the deal based on the numbers. I would do the deal based on the numbers. The problem is what the previous posters have said. I can see this guy getting his $5k cash, not paying rent, and fighting the eviction.

My advise is to go for the easy deals at the beginning. Unless I had certain other information, I’d say get the guy out of the house before you front much money. Then the deal could work as a resale OR a lease/option.

import · September 25, 2003, 10:28am

Re: What do you think I should offer?? - Posted by Brent_IL

Posted by Brent_IL on September 25, 2003 at 10:28:00:

Here is my problem with allowing the sellers to stay.

1 ? There are usually other bills that aren?t being paid. The mortgage payment is usually the last one to go into arrears.

2 ? Assuming that he isn?t paying other monthly obligations, he now has more disposable income than he has had in years. He?s gotten a taste of having some cash to do as he pleases. It takes a lot of discipline to get back to a budget. More discipline than it would have taken to get a part-time job to pay off the arrears.

3 ? Now the other creditors come after him. He gets tired of it. Every day he sees the TV ads from lawyers asking him to call their free helpline. He does, and learns that he can stop paying you for a year because it makes no difference because his credit isn?t going to be restored anyway.

So you have $10,000 cash tied up in the transaction, no money coming in for a year, or longer, monthly payments and condo fees going out, and loan or resale costs involved to unlock any equity remaining, nebulous as that equity may be.

He gets a new car and an easy life for a time.

Get him out of there and your deal improves dramatically.

import · September 25, 2003, 10:22am

Need to think this out - Posted by Doug,ky

Posted by Doug,ky on September 25, 2003 at 10:22:43:

Aways be very careful about leaving the existing owner in the property. If in a year things go south, he’ll fight tooth and nail and possibly go court and say the whole transation was a loan and then that could get you into trouble for making too much profit on the deal. Usary laws! Loose all of money you put into the deal

Secondly where does this guy get off worrying about you trashing his credit when you got 5000 to 10000 in it at risk. That’s like a one year balloon! You need to turn the tables on him right here. If he really wants the mortgage paid off in an year; tell him that you’ll bring the loan current but you’ll have to bring in your own tenant possibly buyer who you’ve qualified and who should be able to pay off the his loan in a year but make no garantines because of possibly rising rates, banking guidelines, or other future unkowns. Tell him that you want the tennat to buy too because that’s where you’ll make some money too. What he needs is someone to bring the loan current now before the bank forecloses and takes all of it. Quite frankly tell him, it doesn’t make sense for you or any other investor to put XXXX dollars into this property and take the risks he’s asking.

I congratualate you on listening to what the guy wants but but he’s not thinking clearly. Wants to stay in property but can he afford the rent when he can’t make the payments now. In foreclosure and wants money for fixing a car or buying one. Demanding you to payoff the loan in a year.

That’s just my opinion.

Doug

PS: By the way there are investors who will let this guy stay in the home with the hopes of him missing a payment and then evicting him as a tenant. I would like to hear the details myself as how to avoid future ledigation from the x owner by doing this.

Thanks