Know a motivated seller, little equity

[Andrew V.]

A buddy of mine has his house on the market and they've had 0 offers in 4 months. He is asking $147,000, which is probably a little high considering the condition of the home. I think it's more like a $135,000 to $140,000 home. It is a late 1940's home and it could definitely use some updating. After speaking with him I found out he owes $131,000. He is more concerned about paying the closing costs and fees than making a ton of money off the property.

I'm just wondering with you experienced investors out there if there is an opportunity of any kind here. I would love to be able to help him and his fiancé move on from this house while also getting a transaction under my belt. I've considered subject-to, but am not sure if I could do anything with it considering the updating it needs, and not sure if he would be willing to hold the loan if they want to purchase a new home. It is still a possibility though, I have never done one but would be willing if it makes sense.

A little about the home: It is a 3/1, 1200 sq ft, has a 1 car detached garage. and a decent sized yard which also could use some work. The neighborhood is good, and is right down the street from the high school.

Is this something worth pursuing in any way or should I just spend my time looking for other deals? Your input is appreciated.

[Larry Chafe]

Andrew,

As a RE investor you can give your friend some guidance in this situation. This is a common problem for many home sellers, they owe about the same as what the house is worth. When they list with a realtor, the house is priced to the loan and not priced to the market. So the price is just a little too high, and it just sits on the market with no offers. You mentioned it needs some updating, and that makes it even harder to sell.

So your friend has a couple options, and none may be exactly what they want.

1) Lower the price, and sell it traditionally and come up with some money out of pocket for closing costs.

2) Don't sell and wait till the market improves (could be long wait - depending on local market).

3) Keep it and rent it out.

4) Sell it sub-to (as you mentioned). This is my area of expertise. If your friend doesn't mind staying his loan staying in place for a while, there are many possibilities. You can get a buyer that brings a down-payment, where you and your friend can get paid. Depending on how good his loan payment is and how much people typically pay for a house payment in the area, he could even wrap his loan and make a little money every month.

So you should explain to him what is possible, but also explain the risks with a sub-to. And he may have a hard time finding a new loan right away. (He may need to rent for a while). Its something you and him have to be comfortable with. (It's definietly not for everybody) But if done properly can be very rewarding.

Good Luck,

Larry