Would You Buy This ....
a home in a new subdivision with building still going on.
Owner bought home last year @130k so no equity, but a 8% interest rate. Payment is $953 per month.
Shes getting divorced & says she cant keep up payment, & she cant afford to pay me to take the home.
I am thinking of writing up a contract on it sub 2 me finding a tenant, with her covering the mortgage until i do.
then i will try to l/o it at 110% of FMV [143k] with 3% down[$4,290] financed at 12% interest [$1426 per month]
According to my calculations, the cash flow will be $348. With a backend profit of $9512 if they refi in 12 months.
Multiplying the monthly cashflow by 12 gives me $4,187 for a total of 18k profit.
This is before closing costs when buying and selling, taxes, insurance, etc.
Going off what i have read from others on this site has brought me to these conclusions, but are they right?
Or am I stupid for trying to do this no equity deal?
seeking the knowledge of the wise,
Verbatim
[ Edited by verbatim on Date 12/08/2003 ]
A few things:
You're assuming that $130k is FMV. Find out what the FMV really is, don't guess. What are some sell prices of other homes in the neighborhood? Don't use new home sell prices, try to find homes that are resells, or owner sold homes as opposed to builder sold homes.
Does the $953 include taxes and insurance? If not, you'll need to add them to it BEFORE you figure in cashflow.
Asking for 10% above FMV and trying to get a refi in 12 months is a little steep for most areas. The average apreciation level is 3-5% per year. Also, your area may be different, but the most common deposit on a lease option is only about 1-2% of selling price. While 3% is possible, it will likely delay getting a tenant.
The most common l/o, land contract terms are 18-24 months
Lease/options also don't have an interest rate. You could use a land contract to get you interest (and a better shot at 3-5% down) but I believe that charging 12% may be a little high. Keep in mind, also, that there may be taxes to pay at the end of the year on your "sell" of the property.
Lastly, don't make an offer contingent upon you finding a buyer or tenant or whatever. It's unprofessional and doesn't show any confidence in your abilities and/or the property. It's likely that it wouldn't be accepted at all, anyway.
Roger
thanks warrior, this is some of the wisdom i have been seeking.
Hi Verbatim,
Yeah dont forget to calculate those taxes and insurance in if its not escrowed. Forget one of those guys and see how fast your anticipated cash flow shrinks..LOL
[addsig]
Why not buy it Subject to the financing staying in place and then sell on a contract for Deed?
Ladybug
Verbatim,
I agree with rajarrior, Find out what the actual value is. If they are still selling homes in the development, you should be able to go into the sales office, and get an idea what a home with the same floor plan and options would sell for today. It is not uncommon for the sales price to go up a few thousand dollars every 5 houses or so that they sell. Find out what incentives the builder is including as well. If the homeowners are responsible to put in their own front yard landscaping, and this house has it, it's worth that much more etc. It is unlikely that the house is still worth only 130K. I'll bet there's some equity there. Raj is correct again when he said that 12% is steep. Really steep! Granted, you'll not likely be dealing with someone with credit scores above 720 with good work history, and more income than necessary to qualify for the best rates, but you're about 2 to 2-1/2 times the rate that the good credit scores etc. are getting right now.
This looks like a potentially good deal, if you have all of the correct numbers to work with.
Good Luck,
Jeff
wouldnt i then have to pay taxes in 2003 on a sale that i wont get paid for for months down the line Ladybug?
If so i would prefer not to do that?
It would get me 10% up front so your idea may be a good one.
Thanks
I live in a declining market that is flat...Austin TX.
These no eqity deals, to hear about, scare the B-jesus out of me. There are over 8,000 houses for sale in my area to take a no eqity deal would be death on a stick.
Most of the people on this site dont agree with my conservitive advice. I would say RUN. In my opinion in order to become rich you have approach things on a worse case scenerio. I do not know anyones net worth that gives advice...just mine. I personally like to be in deals that can stand a bailout of 80% of market. using this rule i will NEVER go bankrupt. My houses will sell AND they will rent in the most volitle of times.
That being said, i do not live in your market. So you get to do what you get to do. there is a saying that says you cannot create the market you just have to live in it.
[addsig]
WheelerDealer,You are correct if you can buy houses 80% LTV or less they are much easier to lease or www.sell.No equity deals are a recipe for disaster.
WheelerDealer,You are correct if you can buy houses 80% LTV or less they are much easier to lease or www.sell.No equity deals are a recipe for disaster.
I agree with Roger, he took the words right oout of my mouth! Just make sure
the people you lease it to have decent
credit!
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."[ Edited by Jeffca on Date 01/19/2004 ]