What would you do? - Posted by T_Mac

Posted by qstaff on August 18, 2003 at 21:22:28:

you have people who break knee caps for the vig–this is a losing deal for you. Could you buy him out NOW and then give him a contract for sale or something?

What would you do? - Posted by T_Mac

Posted by T_Mac on August 18, 2003 at 16:22:37:

Prospect called me on my ad.

Prospect is 3 months deliquent in 1st mortgage (about $4000). Prospect is also about $1000 deliquent in utils.
Prospect does not want to sell or lease-option. Prospect’s ideal solution would be to loan them $5000 w/interest for 1 year. The loan would be secured by a 2nd mortgage on the property. Prospect would lease the property to me (without an option to buy) for 1 year. I would sublease the property to a tenant. Cash flow would be about $250/month.
Would anyone touch this?

Thank you in advance. T_Mac

Re: What would you do? - Posted by T_mac

Posted by T_mac on August 24, 2003 at 19:27:41:

Thanks to those who responded. Based on the information from this discussion & thinking through the deal more carefully, I decided to pass.



He’s looking for a fish - Posted by DaveD(WI)

Posted by DaveD(WI) on August 19, 2003 at 12:03:21:

It hasn’t yet occured to him he may lose the house. If it has, all you are doing is prolonging the enevitable for another year. For his problem to become my problem there would have to be a much bigger payoff beyond just a cash on cash return. Like a piece of the action. JKaiser frequently does these kinds of equity-sharing situations and has done well. Lend him the money only if you get half the equity.

No. - Posted by Brent_IL

Posted by Brent_IL on August 18, 2003 at 16:42:33:

The question is, “How much equity does the seller have”? If the equity is thin, your $5K is gone. It could be eaten by two years of foreclosure costs, also.

One year of payments, i.e., 12 x $250, won’t even return your principal. And that depends upon leasing as planned without any tenant problems.

It is starting to sound like a mantra, but if he can’t make the current payments, how will he pay you? If I had to bet, I?d say this one was a sure loser.

Re: No. - Posted by T_Mac

Posted by T_Mac on August 18, 2003 at 17:11:27:

Brent, I see your point. Maybe I didn’t explain the opportunity properly. Let me take another stab at it.
The house is worth about $275,000. They owe about $190,000. The monthly PITI is $1600/mo. Rentals are about $1850/mo. The idea was to loan the $5k, with no payments for the year. At the end of the year I would collect, let’s say $5,900. That would be about a 18% return. In addition, I would receive a $250/mo spread for 1 year. $5,900 + $3,000 = $8,900 - $5,000 would give me a profit of $3,900.

Re: No. - Posted by Brent_IL

Posted by Brent_IL on August 19, 2003 at 08:04:55:

I posted a reply, but it disappeared into the ethers. This is the condensed, barely remembered version.

There?s enough equity to give it a shot IF there are no other liens. I?d split the leasing activities and the loan. 18% might be usury,

  • Locate tenant.

  • As a courtesy, introduce owner to an alter ego who leases from owner, sub-leases to the tenant, and unbeknownst to the owner, funnels the money to you.

  • Think about lending the owner $5,000 now and an additional $200 every month for twelve months. Play with the APR and the amount due to make the numbers come out the way that you want them to and to mitigate taxes.

  • Transfer title to a land trust and give the trustee the power to sell, et.al. to protect your interest in case you have to foreclose.

The reasoning for all the hassle is to prevent the seller from claiming he was under duress and it was a grab for equity.

Re: No. - Posted by Scott

Posted by Scott on August 18, 2003 at 20:17:13:

Sounds to me like the guy is using you to bail him out and buy a little more time. What profit would you recieve if this guys current (bad) habits continue and he doesn’t pay you? All you would receive is the rent. What happens if the bank forecloses and they take the house? I can think of better ways to risk my 5k for much higher returns. If this guy can’t pay the bank, how is he gonna come up with $5900 in a year, that’s an extra $500 a month! Pass on this one, the only opportunity is in the homeowners ability to get bailed out.IMHO