Posted by Mitchell on February 15, 2002 at 02:14:09:
Great question. I just had this situation. But that is another story. This is what I learned.
If the area has a lot of deals available, first, I would buy Subject to or via an Option, to test the waters. If you can find buyers who can get a regular bank mortgage and cash you out, then OK, buy in that area. Flyer the area several times to locate people who have someone that they want to live next to them; ie a relative or a friend. That will be your best shot because they have lived in that bad school area, are used to it and think the school is just fine and the neighborhood is just great. Of course, the $300-$500 reward helps also.
Advertise and see who shows up for showings. If it is primarily low income types, then be wary. They are trying to move out of the slums and into something nicer. Not that I blame them but they usualy cannot get regular mortgages and you will end up holding paper.
If you can only sell to buyers by holding the paper and then selling the paper, make darn sure that the note buyers are going to end up paying you close to what they estimate, with that type buyer. They will often tell you one price and just prior to closing, they will reduse it by $5,000. or more. If you can still make money, then OK. But, be REAL careful. Bankers can teach polititions and Enron executives a few tricks about how to take advantage of a situation.
BTW, if you have to sell by taking back paper, do not pay more than 40% LTV. The note buyers will take severe discounts.