Break-even Property

[Adam A.]

Hey guys and gals need some insight in regards to a investment that I am working on.
Purchase price $1000 (thats the great part here comes the bad news.)
Water Co lien:$14k
Possible Mortgage lien:$26k
Comps in the area place the value at $40-$50k.
It is not in the best area but I can rent it out for $750-$900/mnth
The reason I am considering this deal is a can't qualify for ordinary financing to get any other property so I knew that I had to get creative. This will be one of my first deals and I want to see it work in my favor. I had a title search done and thats how I know about the liens that are listed on the property, I am going to have the owner just sign over the deed. In other words just do a "handshake" agreement so that I do not have to pony-up the whole $40k up front for the liens. I figured if I hold it and continue to rent it out until I have the capital to pay the liens or hold it until I have the means to qualify for regular financing then refi and pull the cash out (I don't think banks do a title search for refis...... do they...) and just buy more properties using this one as leverage. Well these were my ideas and potential exit strategies on how to make this work any insight would be GREATLY!!!!!!!!!!!!!!!! appreciate.
Thanks all and best of luck with your investments.

[Jon Holdman]

Sounds like you're talking about a subject to deal. That's good. It has a HUGE water lien. That's bad. As Rich and Jesse point out, you're paying retail for this property and that's always a bad idea.

Call the water company and see what's the least they will take to clear the lien. If you can get them to take just a few grand, this might be OK.

Tell the owner they get squat. Even $1000 to the owner is too much.

Yes, lenders do title searches and require you to buy a lenders title policy for a refi.

Are there back payments on that mortgage? If so, you'll need to make those up in short order to avoid a foreclosure.

If you could get this as a pure subject to with a $26K note, it would be a good deal. With $41K in encumbrances, its a bad deal.