To get this deal (deal?) you need to stay in contact with the homeowners. The whole thing hinges on the underlying financing. Does the builder have a take-out loan commitment in place awaiting only the $8,000 payment to be funded? They will have a harder time qualifying now than they have had previously because of the lay-off.
This scenario is analogous to a foreclosure without the back payments. They can’t afford to stay even if they close. The five to eight thousand is probably being weighed against relocation expenses. You can’t put too much into the deal because there are more attractive CRE alternatives.
You could offer the $11K back in 5 ? 7 years. I?d also feel out the builder to see it he could help. It?s inexpensive to talk.
This might be O.K. in a fast appreciating area. The property may have appreciated a few thousand during the construction phase. After they get financed, I’d purchase subject-to and look for a L/O or R/B.
I had a lady call me last night about her home (got my number from one of my bandit signs I’ve been putting up since the convention).
Her husband has been laid off and they are looking to relocate. There problem is they put $11,000 down on a home that is scheduled to be completed in June. At that point, they would owe another 5,000-8,000 to close the deal. They are buying the house for around $200,000. They wanted to know if there was any way to help them or if they should just walk away from the $11,000.
I told her the only way I could see me helping her is if they actually went ahead and closed on the house. Then, I could either take over their payments or rent on a long term basis with an option to buy.
There are no market rents for me to look at because it is a new subdivision. I just figured I may be able to get a bit more from a tenant buyer. Say get $10,000 option consideration and a sales price of $230,000 with a monthly payment to cover PITI plus $200.
If there was a financing contingency on this house, and the buyer does not qualify now because of no job; the buyer may get their whole earnest money back. That is if they did not release this contingency if it exists.
If you want to make a friend who will refer you to others, mention this to them that there may be a way to get their $11k back. Read the contract, check with the financing portion, and what the earnest money ramifications are for defaults; whether it is legal excuse, or by intent.
The way this would work would be if a) you were in a rapidly appreciating market and b) it takes a long time to finish the house.
Back in the boom times of the 80’s builders were so busy it took 1 to 2 years to finish a house in a subdivision. Also they made a point of raising the prices regularly, to make them look desirable. Prices were rising pretty fast anyway. It was possible to put down a small deposit, $1000, and not have any further obligation until the house was finished. At that time you could sell for a $50,000 profit without putting up any more money.
There were people that made a business of this. They had deposits on 100 houses or more when the market went sour in 1988 and they got killed.
So, you might be able to take over their waiting position, by paying them little or nothing, and resell for a profit before you have to put up a dime.
You could also go to the builder and tell him you are in no hurry, you don’t care how long it takes to finish your house, if he has others he needs to work on. If he is busy this should delay things another few months.
Re: Would you try this or stay away?!?!?!?! - Posted by Al-So Cal
Posted by Al-So Cal on April 13, 2002 at 13:54:33:
Have done a few like this. Typically around $5,000
down and wait for completion and then sell immediately.
Last one made $40,000 upon completion.
You should know in advance what you can sell it for.
One thing to remember-2% in, 2% out plus commissions etc.
You might have to pay part of the 5K - 8K to get them to close. As you and Mike implied, it has to be their loan. You’d make subject-to payments. Address their relocation plans.
So, you actually put $5000 down? I was hoping to put nothing down, if possible.
How did you sell it on the backend - Lease option or straight sale? I think it would be hard to do a straight sale in a new subdivision. I think terms is where I can get my profit.
If you put $5000 down, how did you lock up the property prior to it being completed? The person that called me doesn’t even have a mortgage yet but seemed open to closing on the house.
If I were to help them close or not, how would you suggest tying up the property? Or should I just wait and see if they close on the property and then contact them again?