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RockOptions wrote:
> A friend of a friend is moving to another state and needs to sell off
> thier house pretty quick. The comps in the area are from $100,000 to
> $127,000. The house is in good condition. They owe $121,000 and the
> payments are $1000/mo.
You didn't include enough information. What is a reasonable rent for
this house that will attract and keep good tenants? Is the rental
market good? Expenses (RE tax, insurance etc)? If you intend to buy
and resell it, how will you finance it? Is the neighborhood desireable
or on the downswing? What's your local sales market like now? Are the
owners upside down now (owing more than market value)? It appears they
might be. You need to know more about their situation.
You also need to estimate the market value more precisely. If it will
sell for $120K, figure they'll clear $110 - $114 after RE comm.,
contribution to closing etc. So are they ready to accpet that they'll
have to buy themselves out of their house, or will they leave the keys
in the mailbox and let the lender foreclose?
On the surface, this doesn't have the makings of a good deal for the
buy-sell or flip scenario unless you can buy at a deep discount. OTOH,
if it can rent for $1000 to $1200 per month, it starts to make sense
for a buy 'n hold.
> They are obviously motivated and I see an oporatunity here but I really
> have no money to put into it. What's the best way I can make a profit
> on this situation?
Do you mean no cash to put down or no ability to borrow, or both?
> Should I try to get a lease-option on it, rent it and sell it off in
> two or three years with out getting involved with a mortgage on my
> part?
What would you do in the mean-time, live in it or rent it? Lease-option
is tricky - I would stay away as a new comer to RE investing. If you can
buy cheap, living in it for a while and selling on the next up cycle
might make sense. Some tax free money there too.
> This is the best way I can see to make any money off of it? Can any of
> you think of anything else? What would you do? I know this is not an
> ideal situation and I shouldn't bother but I am sure I can get control
> of the place and they are willing to just drop it and run.
If you can line up financing, you can always make a low ball offer. But
first just call them, let them know you're interested and determine
their situation and options, then make an offer. You're not going to
be able to offer them anywhere near their current loan balance (to make
it work for you). Being upside down is a bitter pill but they have to
accept it. If they're current on the loan and can keep making payments,
they would probably try to sell it conventionally instead of to a
bottom feeder to minimize the losses.
To accept your low-ball offer and keep their credit rating intact, they
will have to bring their negative equity to the closing table and buy
or borrow their way out if they can. In determining the offer, you need
to figure your expenses in buying, holding and selling it and an
acceptable profit for yourself....and you must realize that your market
may deteriorate during this time so you may want to figure on a margin
of error too.
Example w/ very rough guesses
Carefully Estimated Market Value: $120K
Your Purchase Price: $100K /$10K down /$90K financed @
Mort. 7.5%/15yr conventional for 4 months holding time = $2260 intrest
expense
RE taxes 4 months: $300
Misc. Repairs, utilities $300
RE Comm when selling: $6000
So you may make $10K, maybe more if you can keep the above expenses
down (ie FSBO or discount broker ?), but maybe less as home values in
your area could decline as many regional markets are doing now and
you'd need to come off the $120K number to sell. Plus expenses are
invariably more than you'll project. So, buying at $100k is a marginal
deal or worse... $90K...OK maybe....$85K....looking better. But these
folks probably do not have $30K to buy out their negative equity. Base
your offer on this kind of procedure. Get out the spreadsheet and fill
it w/ researched realistic data.
> If you think dealing with these people is a bad idea then say so and
> explain why. I am new to this kind of thing but even if I cannot work
> something with these people, I still would like to go thru the motions
> just to for the experience because I've even better prospects down
> the road that I'd really like to get right.
These folks could very well go into foreclosure if they cannot get out
from being upside down and absolutely have to move (they may stay put
once they think things through). Others in the neighborhood are could
be in the same situation so keep an eye peeled for foreclosure sales.
Prices may be headed down.
Start by making offers you know would work for you if accepted. The
worst they can do is thell you to get lost. You may have to make dozens
& dozens of offers until one hits. Good luck.
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Re: How can I make money from this situation?
