First off, a 100% financed home is a hard commodity to find, as they only happen in declining markets. (Every month at least a little gets paid off)
With regards to low equity deals, you should know your exit strategy going in. Just because you can acquire a property doesn't mean that you should.
How are you going to turn a profit? Would rents cover the mortgage payment, and then some? Is there something relatively easy and/or inexpensive that I can do to the property that would dramatically increase the resale value? What kind of terms can I get? Etc.
Bottom line, If it doesn't make financial sense, walk away.
Jeff
Properties with very little equity in flat markets are definately more difficult to make a profit with. Sometimes you can get a little more out of it working out a lease/purchase, or a wrap/contract for deed with a buyer that can't qualify right now for their own financing. This however poses some risk. They are in the situation they are in for one of two reasons.
1) They've made some poor choices, or they just don't have meeting their financial obligations high enough on their priority scale. (This is a bad thing). - OR -
2) They have had some things happen to them that were beyond their control and ability to handle, and they're on the road to recovery. (This is a good thing).
Either way, these people might be willing to pay a little higher sales price, or a little more each month to get their own home.
Successful investing is all about helping people get in a better situation, and getting paid for it.
If you can make these deals work, you could be very successful because you'll have little competition.
Just a tip...In a declining market forward prie your offer. Say you want to offer 100k, and feel that prices will drop 5% over 6 months. Offer 95k, and explain where the other 5k went.
[addsig]
As you mentioned in your post, turning a profit in a tight market is tough, and this is where I would like to request some advice/strategies. In my area Southern Cook County, Illinois there are many worthwile foreclosures, or properties that are below market, usually the properties in the areas that i know re-sell (retail) for approximately $30,000.00 over the REO selling price. An example of what I mean is, this past summer I looked at a very nice REO that was in very good shape, only cosmetics and cleaning. It sold after about 30 days for $115,000. and recently in the last 10 days been listed in the MLS for $145,000, which is a very good representative figure in this area for this type of home. My problem is, when I approach potential investors to inquire about their interest in a wholesale deal they all say "if I buy a house for $100K to $$110K and put a few thousand in to it for repairs, the retail value isn't enough", meaning the $30,000 or so as in the example. I have approached investors who buy cash and they don't get excited for this type of return. They want - I bought at $100K and spent $50K rehabbing and sold it for $300k or at least this type of double your money scenario. One house I have tried to wholesale is currently REO, but not yet listed in the MLS, the Seller/Bank doesn't have possession yet, because there was a Section 8 tenant in place (the Courts allowed her to stay until after the holidays) and she would like to stay ongoing and hoped an investor with a holding strategy would buy the place, but none of the investors I've contacted will look at the $30,000 as worth their time. Considering the bank bought the house at the court sale at $102K and will want that much from their judgement of $132,000, which somewhat substantiates the value of $130K + with repair costs around $5,000. The neighborhood is great, not declining and the properties recently sold are all $135k+. Maybe it's just my approach, thats wrong, but I keep reading stories of investors that were happy to learn of deals that would return about $25K to $30K, but where can I find them? They don't buy in my areas Also, I know in investing this is considered a bad thing, but I feel really badly that I havn't been able to locate a buyer for this property and help this woman and her children stay in their home. I guess my question is more how much should be considered reasonable from an investor's point of view. Any suggestions are greatly appreciated?
Thanks much.
Quote:
On 2003-12-29 23:35, jeff12002 wrote:
Properties with very little equity in flat markets are definately more difficult to make a profit with. Sometimes you can get a little more out of it working out a lease/purchase, or a wrap/contract for deed with a buyer that can't qualify right now for their own financing. This however poses some risk. They are in the situation they are in for one of two reasons.
1) They've made some poor choices, or they just don't have meeting their financial obligations high enough on their priority scale. (This is a bad thing). - OR -
2) They have had some things happen to them that were beyond their control and ability to handle, and they're on the road to recovery. (This is a good thing).
Either way, these people might be willing to pay a little higher sales price, or a little more each month to get their own home.
Successful investing is all about helping people get in a better situation, and getting paid for it.
If you can make these deals work, you could be very successful because you'll have little competition.
ladyb,
In my experience, which is limited. Investors want to be able to pick up and repair the property for 65% of ARV or less. Why? because there are those kinds of returns available. John Locke says that there should be around 20k-25k profits on the average Sub2 deal, and generally he's into it for u-haul money. A lot less than in a rehab deal like you're talking about. While I understand the dilemma you're facing here, the numbers need to be where they need to be for thngs to work.
Jeff
There is a decending market, the drift down is about 5% per 12 months.
You wish to buy a house as an investment so you say to the Owner."Listen I would like to buy your house for $100,000 which is the market, but things are sliding so I am going to have to discount the price the amount of the estimated slide per annum. I will give you $95,000." The Owner picks up a rock and hits you. "Why did you hit me?" You ask? and he replys, "So how come you know how far the market will drop in one year?"
What do I tell him. I have forward in time vision? I am married to a Gypsy. I own magic dice? A Tea Leaf told me? I bought a used copy of Lock's book and found the magic page with the bent corner?
Here is what you say. "I would like to buy your house for what you say it is worth $100,000, but things appear to be sliding and I am afraid if I do that in a years time if it is worth less I will be so upset I will kill myself. Soo to prevent this and to insure you get all of your payments on this $100,000 note you are taking back at 4% interest, I am going to insure that your payments are made on time so you will not worry and I will feel good and it is a win win situation. Cut the price down to $95,000 with payments in accordance."
What do you think? Would it work? Do you think he will notice that you are not putting any money down. Are there any rocks on the ground nearby? Try it.
Will it work? I have not a clue. Lucius[ Edited by Lufos on Date 12/30/2003 ]
After completing a net equity worksheet and explaining exactly how much equity there is in a house, it is time to discuss the split. After spliting the equity equally, the price to seller is 100k. But, you explain that his cut requires a 95k price. The reason is that a fair look at the market reveals that this is the average return over the next six months (-5%). 6 months to rehab/sell.
I know it sounds crazy being from Cali, but Lucious, you are old enough to remember times when it was a virtual lock that prices would be lower six months later. It was just a forshadow....I mean just a tip. Homes will go up forever right?????
[addsig]
In regards to Lufos's comment:
"Soo to prevent this and to insure you get all of your payments on this $100,000 note you are taking back at 4% interest, I am going to insure that your payments are made on time so you will not worry and I will feel good and it is a win win situation. Cut the price down to $95,000 with payments in accordance."
I was under the assumption with sub2 deals, you just take over the payments and provide a little compensation to the owner for moving but what is this "4% interest" that he's paying back to the owner? It is illegal for the homeowner to profit from a sub2 deal.
"It is illegal for an owner to profit from a sub2 deal."
I have never heard that before. I would agree that it may be a violation of a short sale to have an owner compensated with more than a 1k, but I would not say that is even "illegal"
I could be wrong.
In a sub2 deal you are simply "buying" a house for a price. part of the price is the existing financing, and the rest is cash or some other form of payment if any.
To simply say "I though you give them a bit of cash to leave" is trivial. I believe it is fair to give the seller half of the money that will be made. But how much money will be made? That is what a net equity worksheet is for. Part of the expense of selling would be forward pricing in a down market. If you feel it is justified to expect home prices to drop between the time you buy and the time you sell, you better list it as a net negative on your worksheet.
example.
Fair market value is 200k
1st = 120k
delinquent 10k
fixup = 10k
sell cost= 10k
current equity= 50k
Fair market price at time of selling estimated at = 190k
future equity=40k
cash to seller 20k +-
my profit = 20k +- difference in estimated sale price and actual sale price, and any thing I save on the other categories. That is a fair deal for all.
All pigs get slaughtered.
[addsig]
First off, a 100% financed home is a hard commodity to find, as they only happen in declining markets. (Every month at least a little gets paid off)
With regards to low equity deals, you should know your exit strategy going in. Just because you can acquire a property doesn't mean that you should.
How are you going to turn a profit? Would rents cover the mortgage payment, and then some? Is there something relatively easy and/or inexpensive that I can do to the property that would dramatically increase the resale value? What kind of terms can I get? Etc.
Bottom line, If it doesn't make financial sense, walk away.
Jeff
Properties with very little equity in flat markets are definately more difficult to make a profit with. Sometimes you can get a little more out of it working out a lease/purchase, or a wrap/contract for deed with a buyer that can't qualify right now for their own financing. This however poses some risk. They are in the situation they are in for one of two reasons.
1) They've made some poor choices, or they just don't have meeting their financial obligations high enough on their priority scale. (This is a bad thing). - OR -
2) They have had some things happen to them that were beyond their control and ability to handle, and they're on the road to recovery. (This is a good thing).
Either way, these people might be willing to pay a little higher sales price, or a little more each month to get their own home.
Successful investing is all about helping people get in a better situation, and getting paid for it.
If you can make these deals work, you could be very successful because you'll have little competition.
Just a tip...In a declining market forward prie your offer. Say you want to offer 100k, and feel that prices will drop 5% over 6 months. Offer 95k, and explain where the other 5k went.
[addsig]
Hi Jeff,
As you mentioned in your post, turning a profit in a tight market is tough, and this is where I would like to request some advice/strategies. In my area Southern Cook County, Illinois there are many worthwile foreclosures, or properties that are below market, usually the properties in the areas that i know re-sell (retail) for approximately $30,000.00 over the REO selling price. An example of what I mean is, this past summer I looked at a very nice REO that was in very good shape, only cosmetics and cleaning. It sold after about 30 days for $115,000. and recently in the last 10 days been listed in the MLS for $145,000, which is a very good representative figure in this area for this type of home. My problem is, when I approach potential investors to inquire about their interest in a wholesale deal they all say "if I buy a house for $100K to $$110K and put a few thousand in to it for repairs, the retail value isn't enough", meaning the $30,000 or so as in the example. I have approached investors who buy cash and they don't get excited for this type of return. They want - I bought at $100K and spent $50K rehabbing and sold it for $300k or at least this type of double your money scenario. One house I have tried to wholesale is currently REO, but not yet listed in the MLS, the Seller/Bank doesn't have possession yet, because there was a Section 8 tenant in place (the Courts allowed her to stay until after the holidays) and she would like to stay ongoing and hoped an investor with a holding strategy would buy the place, but none of the investors I've contacted will look at the $30,000 as worth their time. Considering the bank bought the house at the court sale at $102K and will want that much from their judgement of $132,000, which somewhat substantiates the value of $130K + with repair costs around $5,000. The neighborhood is great, not declining and the properties recently sold are all $135k+. Maybe it's just my approach, thats wrong, but I keep reading stories of investors that were happy to learn of deals that would return about $25K to $30K, but where can I find them? They don't buy in my areas Also, I know in investing this is considered a bad thing, but I feel really badly that I havn't been able to locate a buyer for this property and help this woman and her children stay in their home. I guess my question is more how much should be considered reasonable from an investor's point of view. Any suggestions are greatly appreciated?
Thanks much.
Quote:
On 2003-12-29 23:35, jeff12002 wrote:
Properties with very little equity in flat markets are definately more difficult to make a profit with. Sometimes you can get a little more out of it working out a lease/purchase, or a wrap/contract for deed with a buyer that can't qualify right now for their own financing. This however poses some risk. They are in the situation they are in for one of two reasons.
1) They've made some poor choices, or they just don't have meeting their financial obligations high enough on their priority scale. (This is a bad thing). - OR -
2) They have had some things happen to them that were beyond their control and ability to handle, and they're on the road to recovery. (This is a good thing).
Either way, these people might be willing to pay a little higher sales price, or a little more each month to get their own home.
Successful investing is all about helping people get in a better situation, and getting paid for it.
If you can make these deals work, you could be very successful because you'll have little competition.
ladyb,
In my experience, which is limited. Investors want to be able to pick up and repair the property for 65% of ARV or less. Why? because there are those kinds of returns available. John Locke says that there should be around 20k-25k profits on the average Sub2 deal, and generally he's into it for u-haul money. A lot less than in a rehab deal like you're talking about. While I understand the dilemma you're facing here, the numbers need to be where they need to be for thngs to work.
Jeff
Lets see if I have this right.
There is a decending market, the drift down is about 5% per 12 months.
You wish to buy a house as an investment so you say to the Owner."Listen I would like to buy your house for $100,000 which is the market, but things are sliding so I am going to have to discount the price the amount of the estimated slide per annum. I will give you $95,000." The Owner picks up a rock and hits you. "Why did you hit me?" You ask? and he replys, "So how come you know how far the market will drop in one year?"
What do I tell him. I have forward in time vision? I am married to a Gypsy. I own magic dice? A Tea Leaf told me? I bought a used copy of Lock's book and found the magic page with the bent corner?
Here is what you say. "I would like to buy your house for what you say it is worth $100,000, but things appear to be sliding and I am afraid if I do that in a years time if it is worth less I will be so upset I will kill myself. Soo to prevent this and to insure you get all of your payments on this $100,000 note you are taking back at 4% interest, I am going to insure that your payments are made on time so you will not worry and I will feel good and it is a win win situation. Cut the price down to $95,000 with payments in accordance."
What do you think? Would it work? Do you think he will notice that you are not putting any money down. Are there any rocks on the ground nearby? Try it.
Will it work? I have not a clue. Lucius[ Edited by Lufos on Date 12/30/2003 ]
Jeff,
Thanks for the reminder. Have a great one.
Lufos,
We should meet at Scandia's and I will show you the page with the bent corner on how to overcome the above problem.
John $Cash$ Locke
Lucious, don't be a knuckle head! J/K
This is what I am saying.
After completing a net equity worksheet and explaining exactly how much equity there is in a house, it is time to discuss the split. After spliting the equity equally, the price to seller is 100k. But, you explain that his cut requires a 95k price. The reason is that a fair look at the market reveals that this is the average return over the next six months (-5%). 6 months to rehab/sell.
I know it sounds crazy being from Cali, but Lucious, you are old enough to remember times when it was a virtual lock that prices would be lower six months later. It was just a forshadow....I mean just a tip. Homes will go up forever right?????
[addsig]
In regards to Lufos's comment:
"Soo to prevent this and to insure you get all of your payments on this $100,000 note you are taking back at 4% interest, I am going to insure that your payments are made on time so you will not worry and I will feel good and it is a win win situation. Cut the price down to $95,000 with payments in accordance."
I was under the assumption with sub2 deals, you just take over the payments and provide a little compensation to the owner for moving but what is this "4% interest" that he's paying back to the owner? It is illegal for the homeowner to profit from a sub2 deal.
"It is illegal for an owner to profit from a sub2 deal."
I have never heard that before. I would agree that it may be a violation of a short sale to have an owner compensated with more than a 1k, but I would not say that is even "illegal"
I could be wrong.
In a sub2 deal you are simply "buying" a house for a price. part of the price is the existing financing, and the rest is cash or some other form of payment if any.
To simply say "I though you give them a bit of cash to leave" is trivial. I believe it is fair to give the seller half of the money that will be made. But how much money will be made? That is what a net equity worksheet is for. Part of the expense of selling would be forward pricing in a down market. If you feel it is justified to expect home prices to drop between the time you buy and the time you sell, you better list it as a net negative on your worksheet.
example.
Fair market value is 200k
1st = 120k
delinquent 10k
fixup = 10k
sell cost= 10k
current equity= 50k
Fair market price at time of selling estimated at = 190k
future equity=40k
cash to seller 20k +-
my profit = 20k +- difference in estimated sale price and actual sale price, and any thing I save on the other categories. That is a fair deal for all.
All pigs get slaughtered.
[addsig]