Any Potential In This Deal?
Hi there,
The beginners forum suggested I should repost my question here, b/c this might be a sub-2 possibility:
I came across a motivated seller who wants to avoid foreclosure (wants to get out of payments/obligation etc), but I'm not sure if there is a profit potential in this deal. I'm learning to think creatively in REI and this might be more of an exercise right now. What do you think:
2 Y.O. 3BR, 2.5BA house, owner *says* value of property is $325K, the combined mortgage balance is $291K, monthly payments are $2800. No leins, according to owner. Owner says mortgage payments are current, house is in excellent condition, but backyard is only partially finished.
For the time being, let's assume the owner is correct with all the info (I wouldn't do this in reality of course). For a real deal, I know I need to do a comp on the property to determine actual worth, etc..
Someone I know says rent for a 3BR in the area would be max $1600.
Since the property is 90% LTV and the mortgage payments are so high for the area, I don't see any profit potential, although I do see some equity.
Would the best idea be to wait for a foreclosure or something? Do you see any profit potential that I'm missing? Could this be a sub-2 deal?
Thanks in advance for any info!
u2s5thmember
With a subject to deal most of the time you would want at least a break even.
The existing mortgage payments are $2800 per month and possible rents are $1600, this isn't even close.
You are right as far as no profit potential given your figures
Keep your eyes open and get the word out that you buy houses and they will find you.
Best of Luck
JohnNH
u2s5thmember,
Glad to meet you.
Saying there is no profit potential in this deal is like saying everyone that lives in this neighborhood only pays $1,600 or less for mortage payments, which we know is not the case.
Of course if you think Tenant/Buyers then you just lost money on this deal. If you think Contract for Sale then you make money on a deal like this.
Rentals values have no correletion between what a house will rent for and what a house will sell for, except if you are renting.
The American Dream of owning one's home makes the difference, they are "buying" not renting, so they understand that they will pay the going rate when purchasing and are happy to do so.
Just use common sense someone is buying houses in this area, so they are paying the going morgtage rates and more if they are credit challenged.
But, if you follow the rental value conception when looking at houses this is great, more deals for Subject To investors who know the difference.
John $Cash$ Locke
Thanks JohnNH and John$Cash$Locke for your replies. $Cash$, *glad* to meet you too!
Actually, someone I know just looked up on the mls about similar properties which sold nearby. Adjusting for 1998-2003 solds, a house a block away with the exact same square footage sold for $280K in Oct. 2003... so it is possible the place is worth less than she owes anyway.
If there is now absolutely no equity w/ high mortgage payments, it seems like this might be an opportunity once the person gets behind on their payments and is facing foreclosure... perhaps a short sale opportunity?
Given the original numbers, I did think T/B's or a sub-2 would be a no profit deal, but I don't know anything about a Contract for Sale... Is that where I would secure a contract for purchase and then sell the contract to... another investor?
Thanks again
u2s5thmember,
Done properly you build your own equity into the deal, here again forget about fair market value, it is the value you put onto the property when selling to someone that cannot qualify conventionally.
It is like purchasing an automobile, some folks qualify for 0% interest and others pay 21%, the 21% interest does not stop people from purchasing an auto.
You really need to think creatively rather than conventionally, conventional thinking is what stops most people from doing deals.
Here is an article that will help you understand.
http://www.thecreativeinvestor.com/modules.php?name=News&file=article&articleid=146
John $Cash$ Locke
Wanna play a game?
talk to the nice man in forcl. Offer to get him out. but he has to help. Deposit with you three payments. You will take contract on the deal. He will sign a statement allowing you to go forward on short sale. You will apply the three payments to bring current if necessary.
Offer the property for sale. Work out a proper mortgage and reduce the payments. Play with the existing financing and prepare to replace it with other on sale.
If bad credit they take over the loan subject to and you can wrap around or you can keep working on that loan to get a reduction in interest rate to bring its payments into conformity. Remember the payments on this darb at this time require an income of over $100,000 a year to be comfortable with the payments.
Start swinging. I think there is a deal there. Control the property and offer for sale. With the present owners limited financial help you should be able to swing it. The market is hot you just have to arrange a little restructure. Thats what you do you Negotiate.
Join the club. Lucius 8-) 8-) 8-)
Lufos,
So what are you saying between the lines is that "Subject 2" is about mockery and it doesn't work for buying props? I see you are broker, is that why you don't like creative RE? My understanding is that we the buyers shoul use short sell and subject 2 to buy properties for little or no money down, not to sell it to a buyer who cannot qualify. Am I right JohnLocke? BTW, great article!!! :-( [ Edited by John29 on Date 03/27/2004 ]