What to do with a $300K house in Texas? HELP NEEDED!

Question

Good Evening BP members,

I am a new investor in Texas just getting my feet wet and am currently working on my very first deal acquiring a property via subject to. The sellers have already moved out and are going through a divorce. Their property has been listed by an agent for a month but so far no satisfying offers. Sellers want to sell quickly at fair market value of $299K but the house has some ($10-15k) cosmetic work needed. Also, sellers are burdened by the mortgage but don't have time to fix the house. My question is, how would an experienced investor go about this as exit strategies? Market rent in the area is in the $2000-2100 range, not much spread as a rental; not in the typical price range of an owner financed deal. Any advice would be greatly appreciated!

Thanks in advance!

Zijuan

Rick Pozos · Answer

You cant assume anything. You have to know what they will take and how they will take it. ASK THE QUESTIONS. They are sometimes difficult, especially if they are friends.

You might see if they would take 5k each, take the property sub to, and give them a 2nd on the house for 30k or 50k or whatever you feel comfortable giving them as a note. Pay them over the next few years with a balloon at year 3 or 4 or 5. This way they get a little cash in their pocket and a couple hundred every month until you sell or refinance.

Even though they are friends, you are still an investor. Remember you are helping them out of their situation. Because they are asking retail with plenty of repairs, they are NOT going to get full asking price. You might think about talking to them about 230k or 240k with the terms above. Always remember with whoever you are dealing with, you are still an investor and not going to get into a deal that does not make financial sense for you AND for them.

Kyle Mccaw · Answer

@Zijuan Capps this couple can't get everything they want. If they don't want to fix the house or wait for a higher offer they will have to sell it for less. Remember you are an investor. Don't get emotionally attached to the deal. If the number work...they work. If they don't...they don't.

Rick Pozos · Answer

@Zijuan Capps you are an investor. You will have to invest several months of mortgage payments to find a buyer. AND you will have to spend some money to do some repairs to get the property market ready. It WILL take some investment in $$$ to get it to where it will sell.

You might do owner financing with 5% to 10% down to recoup some of your investment. Your payoff will be when they refinance in 5 years if you put in a balloon payment. (As long as you are not doing 5+ owner financings per year).

Bhavani Dewan · Answer

@Zijuan Capps I assume you may have already taken care about this - watch out for is the appraised value. Recently due to low interest rates home appraisals are a bit lower than (read way below) previous estimates. Look at Zestimate or Redfin estimates to ensure its inline with the above numbers. This will impact the value of payout. Next is the repair estimate vetted by 3-4 GCs and if there are any other lines on the property.

As for the rentals, I am learning to look for:

- are there similar properties available for rent

- have any of their rent recently reduced

- overall neighborhood classification

- access to stores, major highways etc

- schools already in session so may not be lucrative

- cash flow and IRR ( I am still figuring out IRR)

Kudos for trying to help out friends. Hope things work out and get another rental in your portfolio.

Good luck.

Regards,

Bhavani Dewan

Kenneth McKeown · Answer

@Zijuan Capps at the end of the day if you're looking to purchase an investment property - you need some meat on the bones. It doesn't sound like this will have very much, if any at all. I'd suggest you look elsewhere even though you know the sellers. More than likely what they will be doing it is lowering it on the market to get as much $$ as possible. If it's listed at 299k they will likely lower the price and continue lowering it rather than taking an offer from an investor (likely only makes sense less than 250k).

Mark Sewell · Answer

@Zijuan Capps

If you are doing any kind of consistent marketing or lead gen, then you will have these sellers contacting you.  They want full price but they don’t want to list.  You just need to gently make them understand the situation.

The analogy is trying to trade your used car in at a dealership.  You know that you are NOT going to get full value on your trade, but many people do it anyway- just easier, faster, whatever.

Zijuan Capps · Answer

@Rick Pozos thank you for your advice, makes perfect sense! However, based on your experience, how hard is it to market/find buyers to a owner financed house in the $300k price range? Time is the enemy.

Zijuan Capps · Answer

Thank you for your responses Guy Gimenez and Christine Daecher! I know the sellers personally so the realtor is not a problem. PITI is $1500/mon (PI: $850; TI: $650) at 3.5% fixed interest rate, no back payments due, thinking maybe a wrap mortgage would get them the price they want but with the divorce it makes the situation trickier, they have about $168K left on the mortgage I assume they would want all the equity up front so they can divide it up. The house is located in north Fort Worth. No good offers with the realtor so far after 2 months and they want to sell it fast, maybe they will consider dropping the price but for now I'm just thinking of a way to help solve their problems at this point.

Christine D. · Answer

*Duplicate deleted*

What to do with a $300K house in Texas? HELP NEEDED!

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