How do you make money on no equity properties?

Question

I get about 10 calls a week from sellers that have no equity in their houses that need to sell. Most Realtors or investors won't touch these deals. Is there any way to make money from these.

I am an agent and I have considered adding seller financing to get these deals to work.

Here is a sample deal I run into.

House is worth $170,000
Owner owes $167,000
Monthly payment is $1325
House would rent for $1200

Should I advertise it in the MLS for $185,000 and Seller Will Finance. Many of the same houses in that area are being liquidated by banks for $155,000.

I have considered taking the $5000 that a tenant/buyer would put down and then just letting the buyer pay the seller directly and hope that the seller pays the underlying loan.

Is this to risky?

Jeff Smith · Answer

Check with your limits as an agent but I would find Investors who do Short sales and pass these leads on to him/her for a finders fee.

Derek W. · Answer

WE (as knowledgeable investors) can always do better.  The general public usually cannot.  I am shocked at how many people don't care about price, or don't know about price.  They only care about monthly affordability.  I have had a few equity share properties and can say from experience people ARE willing to pay more than market value if they cannot qualify for a loan.  I had a property in San Jacinto, CA that had a comp value of 190- 200k.  The owner was upside down at that value, but I was able to find people willing to agree on a mutually agreed value of 235k for purposes of an equity share because the 30 year fixed mortgage had monthly payments they could afford. They have 7 years to refinance the property and cash out the mortgage holder, so they are gambling that prices will be back up in 7 years so the property will appraise for 235k and they will clean up their credit so they can qualify for a loan.  In the mean time they have a home they can live in without dealing with a land lord and have monthly payments paying down the mortgage and (hopefully) building equity.  Some peoples credit problems are way beyond a 6-12 month clean up.

Michael Rossi · Answer

The question I have is why anyone would even consider buying a property at or near retail?  With any work at all, you can ALWAYS buy a house at a discount.  Then, if you think you could charge extra money with owner financing, you would be making a larger profit with less risk.

The point is:  NEVER PAY RETAIL FOR A PROPERTY!  You can always do better.

Mike

Lee Allen · Answer

I would think that buyers would just try to clean up their credit and buy a 155k property in 6-12 months instead of an overpriced 185k property now.

Dave P. · Answer

Lee,
                                                
                                                Your seller financing won't work. Why would you try to jam someone in a house for more than it's worth?
                                                
                                                House is worth $170,000 
                                                Owner owes $167,000 
                                                Monthly payment is $1325 
                                                House would rent for $1200
                                                
                                                Should I advertise it in the MLS for $185,000 and Seller Will Finance. Many of the same houses in that area are being liquidated by banks for $155,000.
                                                
                                                If the house is "worth" 170K, then why would you try to get someone to buy if for 185K?
                                                
                                                If other houses are being "liquidated" for 155K (assuming the houses are truly comparable) then your subject property is worth 155K.

I would just do a short sale.

Alan Brymer · Answer

I would try to get a short sale while simultaneously trying to find a seller-finance buyer like you described.

Jeff Fairchild · Answer

Short sale would be the most common I believe.
            
            The seller could come up with cash at closing if they have it if they sell for less than is owed.
            
            Sellers could sell house for more if they include a vehicle or furniture or some valuable w/ the house.

Make sure client  houses are staged so they sell faster & for more.

Derek W. · Answer

If I understand the question, according to your scenario there are two ways that come to mind that I would use to sell the house in your example.  One would be a short sale.  You said you are an agent, so you would profit the commission of the sale as a listing agent.  Or you could do an Equity Holding trust or lease option (lots of info on these in other threads) and market the existing financing to those that may have trouble qualifying for a loan.  If the property is only slightly upside down, like in your example, and the area isnâ€™t drastically depreciating, like Inland Empire, California, then the existing financing is the attractive part of the deal.  People will pay a little more than market value if they can take over existing financing without lender qualifying.  Seller gets out of the property with credit intact, and you make a fee for the deal.  So you are onto the right idea.  Just research the best way to put the deal together to make it the least risky.  These are done all the time.