Too Much Equity!!
Ok I have another possible deal...a lot of equity though. This house is in a really good neighborhood that has good appreciation, great schools, etc.
Seller has lost their job and is looking to sell or lease their home. They haven't listed it yet. I know if they do, they shouldn't have too much trouble selling.
FMV 220k-230k
Balance 120k
PITI 1400
Market rents 1400-1600
I figure I could maybe knock down the price with the yellow pad to about 190k at the most! That still leaves at least 70k to deal with. How would you deal with this one? I know if I did a sandwich lease option, I could set a purchase price of let's say 210k with the sellers in 4 years. Then I could lease option it out at 240k to tenant buyers, and collect the difference.
How could I acheive this with a subto...can I? I figure I could write a promissary note for their equity...but how would that work? Is there a way to make it payable upon selling? Basically I don't want to do an owner finance for that amount, as the property may not cashflow.
I could knock it down more than that. Let's see.
1. If they list at $230k, then they are most likely going to get less than that. We'll say 3%, that's a good average. So knock off $6900.
2. Realtor commisson. Here it's 7%, so that's $15.6k.
3. Closing costs of 3%, or $6700.
4. Your profit, $20k
5. 6 months of holding costs at $1400/mo, that's $8400
That puts you at $172.4k. Now, offer them a couple of grand and they take back the rest in a 2nd. If they need the money now, if they have to have it for a downpayment in another house, have them refinance and take that $50k out, then you take that new $170k loan sub-2.[ Edited by chriseaker on Date 12/18/2003 ]
If they know there is no such problem to sell in that area, sellers won't accept that kind of deal and will sell by owner for much more money. With high equity, they can still refinance with no problem (even if there is no job) as long they get 25%-30% equity and cash out the difference. That gives them plenty of time to sell at higher price...
Then they are not the type of seller you should be targeting. You want folks who need to sell NOW, and can not wait.
Offer them this deal - set the purchase price of the house @ $200k. Pay them $120k(or whatever is enough to buyout their mortgage) now, and have the carry the rest as owner financing @ 0% APR for a year or two. That gives you plenty of time to make it pretty and resell it within a year.
Man, must be easy to do business in good ol' GA. In Chicagoland commission rates of 7% are unheard of for quite some time now(5-6% is probably more prevailing rate). Also, as much as I like to inflat things, seller's closing costs of a building in that price range in Illinois is more like $2k.
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On 2003-12-18 06:47, chriseaker wrote:
I could knock it down more than that. Let's see.
1. If they list at $230k, then they are most likely going to get less than that. We'll say 3%, that's a good average. So knock off $6900.
2. Realtor commisson. Here it's 7%, so that's $15.6k.
3. Closing costs of 3%, or $6700.
4. Your profit, $20k
5. 6 months of holding costs at $1400/mo, that's $8400
That puts you at $172.4k. Now, offer them a couple of grand and they take back the rest in a 2nd. If they need the money now, if they have to have it for a downpayment in another house, have them refinance and take that $50k out, then you take that new $170k loan sub-2.
<font size=-1>[ Edited by chriseaker on Date 12/18/2003 ]</font>
commission rates in our area are 6-7% for realtors. Realtor actually gets 3% and some get 1/2 the broker gets the rest.
This sounds good, but are you saying to take it subject to for the 120k, or just purchase it?? Also, there is nothing to make pretty in this house...no repairs or fix up needed. Are you advising a L/O or ILC to resell in 1-2 years?
How does that work, 0 percent financing for 1-2 years anyway? Does that mean principal only payments, divided up in 1-2 years....or is that NO payments and everything due at the end? What if my tenant-buyer does not exercise their option at the end of the term....I'd be stuck with a huge bill wouldn't I....though I figure I could refinance if it came down to it.
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On 2003-12-18 09:53, compwhiz wrote:
Offer them this deal - set the purchase price of the house @ $200k. Pay them $120k(or whatever is enough to buyout their mortgage) now, and have the carry the rest as owner financing @ 0% APR for a year or two. That gives you plenty of time to make it pretty and resell it within a year.
In Chicago the rates are so much lower because of the price of the housing. I had an agent just recently try to list my house there at 4.5%.
The closing costs of 2K would be if there were no seller concessions or other negotiated items. Very seldom does that happen. I know that when I bought my primary residence there a couple of years ago that the seller came to the table with a lot more than 1% for closing costs. And don't forget that if your taxes are paid in arrears, like they are in Lake County, you had better calculate that into your offer. In the purchase just mentioned the seller had to give me $5500 at the table for property taxes.
I do not consider tax proration as a closing cost, although I can see why it can be considered as such. If you take taxes into account, you certainly can call closing costs to be in 3% range.
However, unless certain concessions have been negotiated in advance, a seller cannot in good conscience count on spending more money at the closing than paying their attorney, paying for title insurance, and state/county/local transfer taxes.
You're right about why rates in Chicago are lower than in GA. Some agents that want to undercut their competition will offer rates less than 5%. I charge about 4% for full service listing or $400 for flat-fee MLS listing.
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On 2003-12-18 13:44, thomasgsweat wrote:
In Chicago the rates are so much lower because of the price of the housing. I had an agent just recently try to list my house there at 4.5%.
The closing costs of 2K would be if there were no seller concessions or other negotiated items. Very seldom does that happen. I know that when I bought my primary residence there a couple of years ago that the seller came to the table with a lot more than 1% for closing costs. And don't forget that if your taxes are paid in arrears, like they are in Lake County, you had better calculate that into your offer. In the purchase just mentioned the seller had to give me $5500 at the table for property taxes.
Just do an official purchase transaction. Get a first mortgage in your name. Have them carry back $80k in owner-financing at 0% for two years. Make amortized payments under 30-year schedule with mortgage due in two years. By that time, you resell the property and pay it off.
Risky? A bit. Doable in two years if the property is in right condition and right location? Very much so.
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On 2003-12-18 13:43, snek11 wrote:
This sounds good, but are you saying to take it subject to for the 120k, or just purchase it?? Also, there is nothing to make pretty in this house...no repairs or fix up needed. Are you advising a L/O or ILC to resell in 1-2 years?
How does that work, 0 percent financing for 1-2 years anyway? Does that mean principal only payments, divided up in 1-2 years....or is that NO payments and everything due at the end? What if my tenant-buyer does not exercise their option at the end of the term....I'd be stuck with a huge bill wouldn't I....though I figure I could refinance if it came down to it.
Quote:
On 2003-12-18 09:53, compwhiz wrote:
Offer them this deal - set the purchase price of the house @ $200k. Pay them $120k(or whatever is enough to buyout their mortgage) now, and have the carry the rest as owner financing @ 0% APR for a year or two. That gives you plenty of time to make it pretty and resell it within a year.
I'm sorry, I don't fully understand the tax portion. I never had to deal with it on my own condo, it's all escrowed. I know it gets paid out twice a year.
Compwhiz, is there a reason you wouldn't take this property subject to? Also, I don't know if it'll cashflow too well if I had to make payments on the 80k...
I'll see what I can do, thx.
In Illinois you pay real estate taxes in arrears - 2002 taxes are paid in 2003, 2003 in 2004, etc. They are paid in two installments. However, if you lived in/owned the property in 2003, you're responsible for giving the seller a credit for the 2003 taxes that have been accrued but not yet payable. The buyer then will pay those taxes on 2004 when they become due.
As far as taking the property subject-to - you certainly can do that, but if they will have an attorney involved, that might kill the transaction. But you can certainly try..
I don't believe anybody will accept the $120K pay off and 0% financing on the remaining $80K. If a seller get $80K of equity, he'll sell and get the $80K in cash unless he's already rich with another home...
compwhiz,
I think that we are in agreement.
However, I have very seldom been even close to a transaction where the buyer wasn't asking for concessions at closing. Your experiences have obviously been different.
In a sub2 deal you are probably going to have to take care of the taxes for them anyway. They aren't going to have the cash so it needs to be taken into account. Separate it out or include it in the closing costs, it still has to be accounted for.
Most of the time, if you can put yourself in the seller's shoes, you'll right away if there is a deal or no.
If the owner can move on easily with $80K, why should he let that money to somebody else?
Does that make sense??
codythebest,
Your statements are predicated on your sellers situation being one where they just want to sell. If your sellers are "Anxious" or desperate to sell, or feel that they "need" to sell, they will do what is necessary to resolve their situation.
You seem to be trying to convince those that are doing it that it can't be done. People do purchase properties with alot of equity using sub2 methods. Some of the sellers even discount heavily, and/or defer profits from their equity. (When they are in the right frame of mind).
Jeff
the owner has lost his job. that makes it a distressed property to me. i would make my offer accordingly. ggod luck. kenmax