To Buy Or Not To Buy
If you happen upon a property that has no equity, and the payoff is FMV, what would be a good reason to purchase this property?
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I don't think any if it's REI.
BTW - If you are trying to figure out why someone else might buy assume that now all deals make economic sense. Some people are emotional buyers.
Another view is such a deal might not be great but if it helps keep a 1031 together then it could be purchased.
John
[addsig]
what is a 1031?
See the tax forum.
By its self, this question is too simple to get a good answer. However, depending on your investing goals and methods, there would be opportunity in a no equity house.
First, you need to know the difference between "real equity" and "perceived equity." Perceived equity is simply taking the FMV and deducting the loan amount to get your "equity." Real equity is any equity left over after deducting loan amount AND all costs associated with closing.
Now, using your question, you have a property where the FMV is $100K (for example) and the payoff is $100K. Assuming that this is not because property values are falling, there is still opportunity here, again depending on your goals and methods.
If you buy outright, then this is not a good deal period. However, it's a perfect candidate for a short sale, and it's possible that it's a good candidate for taking subject to.
Short sale is simple. You're offering less than what is owed, and trying to get the lender to accept it.
It would only be a good subto deal if the current payments were low enough to make a good monthly spread and the current home values were at least steadily increasing.
Roger