Pre-foreclosure's HELP
Hey all
I got a call from a guy in a city about 20 miles from me. He is in a city of about 40,000 people that has had some employment problems and therfore lack of tenants. Its a nice town though. He lost his job and said he see's his 2 houses going into foreclosure. He sounds knowlegeable about creative real estate.
First is a four family. 2bed, 1 bath units. 70 years old but nicely remodeled. Rents are $495, $485, $465, $465. 3 are rented out. Had it listed for 120k and 130k but nobody made an offer (dwindling town). Fair market of about $155k. He owes 116k on a first mortage. Payment is $700. Taxes and insurance are $250. He pays Water and Gas and $100 for electric.
Second is very old (1890) 2 family. 2 Bed 1 bath each. $360 each with 1 vacant. Partially remodled. Listed at $65,000. No takers. Fair market of $65k. He owes 52k. Payments are $300 a month. $1100 a year in taxes. Tenants pay utilities.
Well here is the interesting part. The guy says and I quote "I just need someone to take over the payments. I would like the loan to stay in my name so my credit improves while I go back to school". I almost flipped out.
Both were refid in June of 2002. Balloons due in June 2005. He said after balloon date the interest rate can go up to 8% max. Currently they are both at 6%. I am not sure if I would need to pay them off by then or what.
Anyhow this guy knows his stuff. What does this look like with this info? Somone help please.
I can't speak from direct experience of putting a deal like this together but my instincts tell me that it can't be that good of a deal.
For one, you say he is "creative investing" savvy. If this is true and there is money to be made, why is he not creatively making that money which he is "offering" to you?
Secondly, you say the town is a "dwindling" town and vacancy rate is high. On top of that you are buying these 2 propeties w/ vacancies. If vacancy rate is going up and you already have vacancies, how do you plan to fill your current vacancies nevermind avoid further vacancy.
Do your research on this! I would say that it looks like he is trying to get out of a failing proposition. But then he does want to keep his name on it. There are a lot of questions to be answered here - not saying that it's a bad deal but make sure you know what your getting.
Thanks.
Thats the first thing I asked myself. Even with the 1 vacancy on the 4 family he should be cashflowing. Why would he want to get rid of it.
He did seem sincere in that he wants to go to school full time and does not have time or money to keep this up.
If I were thinking of buying this place with traditional financing, it would likely be a fair deal at best. However with the loan staying in his name, it really makes it look attractive.
There's a couple of things that you should consider. If this property was listed for 120k without takers, its FMV is LESS than that. Hence, at best you have zero equity. Next, paying gas& electricity in WI (i hear it gets below 50 in the winter time) can kill you financially. Generally, these places rent easily during the winter months because the tenants know what their total housing costs are (rent +utilites) --- and then empty out when the weather warms up. . Lastly,you can't possibly consider refinancing without digging deep into your pocket. Conclusion
ass.
The other property may be a buy if you can get it by just taking over the mtg and perhaps giving him enough money for textbooks and one of those cheese hats that I've always wanted. The final thing that you should think about is that this is 20 miles away, which presents some problems and the fact that its an Antebellum structure.
Well I talked to this yahoo again and he changed his tune. He now wants to sell on a lease option. He explained it wrong yesterday. He is 2 payments behind on 1 place and 1 on the other. I dont think he knows the difference between the 2. He basically said that I would be paying the current mortgage, taxes and insurance. I dont want to buy on a lease option. I said I may be interested in buying on a land contract that mirrored his current payments so I had more security and he said thats probably ok. I would rather have the deed but he said he can give the place back to the bank in leu of foreclosure so he is not as motivated as I first thought.
The gas bill is whats been killing him. Its about $300 in the winter and flucuates greatly in the summer. He had 2 vacancies for some time and used his escrowed tax money to pay the mortgage. Electric and water are about $150 a month total for him. It looks like he breaks even with 3 places rented but gets in trouble after that. Taxes are due this month and he has no money.
So now basically all I could offer him is to buy on a land contract mirroring his payments or I could pitch sub2 to him but I doubt he will give me the deed. Any thoughts on the turn of events?
My gut feeling is this individual partially knows what he or she is talking about. However, he or she is using this knowledge and a good amount of pressure (letting it go back to the bank, which will stay on her or his credit as long as the foreclosure) to push you into a bad deal. I know that there are times when measures such as borrowing from Peter to pay Paul is necessary, but this individual has pushed it to the limit. I would also be concerned about other liens, such as a mechanics or seconds, on the property incurred by this individual. Since the information to this point has been sketchy, I would doubt everything and not settle for a deal that does not deed the property to you.
Yes he is looking for someone to save his butt I think. Thanks for the reply. Its very appreciated.