Stuck In Low-equity Caller Hell. Help!
I'm new to investing and I'm trying to make a go of this by having flyers distributed and putting up signs (a couple hundred so far). I'm starting to get calls and some are even from motivated sellers. That's the good news. Problem is I seem to be a magnet for people with little or no equity. Typical example from today... guy calls who's separated from his wife and is falling behind on his mortgage (3 payments). He wants to sell and is willing to let it go for his loan balance and has no cash to give me. The ARV is $90, loan balance is $74, he's $3K behind and repairs would be $5K. By my calculation, this deal has (conservatively) a whopping $8K in back-end profit. Am I missing some "key" to unlock profits in this deal and others like it?? Or, is this one that I should pass on and just wait for a good deal to come along? Do folks do short-sales and sub2s together?
Thanks for the help!!
Hope this will help you!:
There is a web page with a little manual in lease to purchase option, which I found "very" informative. It is for deals with little to no equity deals.
You can buy the booklet very inexpensive, and read it in 2 hrs.
I am not sure if I can post the web page, so send me and e-mail if you want to.
You are on your way, Best of luck!
Rocio
I guess I would have to analyze alot of variables before putting myself on the line with this deal. What is the area like? What are the average DOM for the houses here. Why not get an option to purchase and sell the house to an investor as-is? Theres a lot of different things you can do with this. I think you have more equity in this property that you see. But, you really need to look at the entire scenario before you put forth any cash and put yourself on the line. Remeber this, if you do a L/P and you hold out until a L/P buyer comes along with option money, you have to ask yourself how long it might be before you find someone with that kind of option money to put down. Also remember that the arrearages continue to build the longer you wait. Another option is to work a short sale on the property with the lender. Is it in foreclosure? check out the section on short sales. Good luck!
Have you pulled comps in the area to determine FMV? Is the 90,000 figure what it is now or what it will be after the repairs? Remember you're also going to mark the house up on the back end as well buy at least 10 percent, this looks like a pretty good deal to me.
It does not look like too bad of a deal for subject to either. I would start with a short sale on the property if you can make it happen, if not discuss with the owner to get some cash from them for part of the 8K. You can either sell the deed (john lockes book on this site) or lease option either way you will get some upfront cash to cover your cost. hopefully you will have a positive monthly, and appreciation till the sale closes. Should be more then you are thinking.
Ok providing that I'm reading this right this is what I've come up with.
90K value
74K loan
16K equity
Of which he owes 3K in back payments (1K per month payment, including late fees) and it's going to take 5K to fix it up.
So lets knock that equity down.
Take off 6% for realor fees ($5400)
Take off another 3% for closing costs ($2700)
And another 4% because people always price high and are willing to drop some ($3600)
and the repair costs ($5000)
That comes out to $16,700
Now we take that away from the $90K and come up with $73,300
But he still owe $74K!!!!!!
Sounds like U haul money to me except for one little problem, the $3K that he's behind, so lets see if we can still make this work.
Agree to pay the $3k that he's behind and he walks (make sure the wifes name isn't on the paper work, if it is she needs to be there as well)
Now make your repairs (providing you've got the $$$ for that)
Turn around and sell it (this is all done subto mind you) and get $8-10K down
At this point you're only breaking even to making $2k, but thats ok, we're not done yet.
Sell the house for $100K and knock the monthy payments up $200 a month or so.
total profit:
$0-2K front end
$4800 from 2 yrs of payments
$26,000 back end
$30,800-$32,800
Just order John's book and do it subto...
Now lets say you don't have the $8K see if the seller can re-fi fo $79k (if he can get a lower interet rate than he already has) or get a home eaquity loan for the $8K needed for repairs and back payment and work the numbers the same way. He's still just under $1000 in the hole in terms of equity so offer him $500-$700 just to walk.