Attorney · Nashville, TN · Member since 2014 · 38 posts · 33 votes
I just received my first call from my direct mail campaign. The lead is an out of state absentee owner who owns the house as a rental and is underwater on his mortgage. He bought the house in 2007 and said if he tried to sell it now he'd have to come out of pocket substantially. He said he's tired of dealing with the property and wants to get rid of it but doesn't know what to do. The house is currently rented with property management. He said he was planning on just renting the house out long term before he got my letter.
What options do I have to help him? Would this be a good candidate for something like a subject to deal or something similar or is this a dead end lead? Thanks!
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Kirk Gore If it cash flows well enough some investors might take it subject to, even under water. But this is dangerous and you and he should know what you are getting into before proceeding. Another possibility would be a sandwich lease. You could lease it long term eith right to sublet it. If the difference between the two is big enough in your favor this may be of interest. You'll likely need to makr him responsible for major repairs. Or you could do a lease option the same way. Finally, you could try to do a short sale. I've found that the bank wants too much 90% of the time. But the 10% can make it worth it. However you'll need to be able to close yourself on the property.
Real Estate Investor · Raleigh, NC · Member since 2012 · 427 posts · 297 votes
11y
If you take it over sub2 without him bring money to the table, you are now underwater (well technically his name is still on the loan but you committed to the payments). Will he bring enough money to the table so you are not taking it over at negative equity? I would imagine not since he does not want to sell it traditionally and bring money to the table.
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
11y
@Kirk Gore If it cash flows well enough some investors might take it subject to, even under water. But this is dangerous and you and he should know what you are getting into before proceeding. Another possibility would be a sandwich lease. You could lease it long term eith right to sublet it. If the difference between the two is big enough in your favor this may be of interest. You'll likely need to makr him responsible for major repairs. Or you could do a lease option the same way. Finally, you could try to do a short sale. I've found that the bank wants too much 90% of the time. But the 10% can make it worth it. However you'll need to be able to close yourself on the property.
Attorney · Nashville, TN · Member since 2014 · 38 posts · 33 votes
11y
Thanks for the responses guys!
@Eric F. , He showed an interest in selling despite being underwater and seems fairly motivated so I think he'd be willing to come a little out of pocket to unload the house. I haven't discussed any special kinds of financing yet with him though so I don't know how he'll respond to that.
@Larry Turowski , Is the only difference between a sandwich lease and lease option that the lease option includes the option to buy after a certain amount of time? I'd imagine that for me to be able to cashflow the house with a lease, he'd have to lease me the house at substantially less that the market rent he's getting now so it may not be as good of a deal for him. Is there a way for us both to come out ahead financially using leases?
Also, can you recommend any resources to learn more about the short sell process? Have you had any success with short sells?
Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
11y
Originally posted by @Kirk Gore:
Thanks for the responses guys!
Is the only difference between a sandwich lease and lease option that the lease option includes the option to buy after a certain amount of time? I'd imagine that for me to be able to cashflow the house with a lease, he'd have to lease me the house at substantially less that the market rent he's getting now so it may not be as good of a deal for him. Is there a way for us both to come out ahead financially using leases?
Also, can you recommend any resources to learn more about the short sell process? Have you had any success with short sells?
Thanks again!
Yes, that is pretty much the difference. All-in-all, a short sale is likely your best option. You may want to bring the deal to another investor or realtor who is knows how to handle short sales.
Real Estate Agent · Nationwide (United States) · Member since 2014 · 99 posts · 34 votes
11y
I would highly recommend getting a license. :) Why leave this money on the table? That's a short sale listing. And no, that doesn't mean you'll sit at home calling banks, or showing people around to houses or sitting in a real estate office listening to sales meetings. Find a broker that let's you be, outsource the short sale work to a processing company, list it, collect. Rinse. Repeat.
@Daniel Francis , I actually just got licensed and sponsored by a local broker last month! So legally I can help him with a short sell even though I have absolutely no experience with them. What kind of company would I contact to process a short sell? I plan on calling him back if/when I can get familiar enough with them to feel comfortable helping him through the process.
Real Estate Agent · Nationwide (United States) · Member since 2014 · 99 posts · 34 votes
11y
@Kirk Gore We used to outsource but now its all internal as my brokerage has a short sale processing staff. I wouldn't have a recommendation, but I would imagine if you google "short sale processor" you'll find many. No need to wait.... Its way easier than you think!
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
11y
Be careful of Short Sale realtors, some are good, some are not good, and if you make a mistake and send them to nonperforming short sale realtor, you Will have a problem
for example Bank of America is very different from Wells Fargo which is very different from Chase
An idea is to have the seller participate in the negative cash flow.
Let's say that we have a house that has a value of 100,000, and they bought at the top of the market, and they owe 101,000, and you want at least $10,000 position in the property.
Let's say that the market rent is 1000, and the P I T I is $800, not including maintenance.
I would talk to the seller about the danger of buying a property that's over leveraged, and tell him it would cost about 10% to sell, including the commissions, closing costs, sellers concessions, etc
Another words it's very expensive to sell a house, or to liquidate your position.
Their choices are to bring cash to closing, rented out and deal with tenants or property managers or both, damage, evictions, etc
When I would consider doing is to buy the property subject to existing financing, if they would sign a note for $10,000 and pay 500 a month, with no interest as long as the payment was on time, and if it's late payment interest might be 8% or so.
Is that a good deal for them? I don't know, but I'm not going to get involved with a property that I'm buying negative equity.
It's a rookie mistake to look at a property, and ask yourself, if I sell it today can I make a profit, with all customary costs of using an agent?
To repeat, if The property is worth comps wise hundred thousand, and they owe 101,000, the real value 101,0000 minus the costs to sell minus a minimum profit
Attorney · Nashville, TN · Member since 2014 · 38 posts · 33 votes
11y
@Brian Gibbons that's very interesting and makes a lot of sense. In this particular situation I've discovered that the lead's house is worth around $95,000 in current market conditions but he owes $116,000. Would you suggest taking the deal subject to his mortgage with such a large disparity assuming he would agree to sign an additional note? What amount of additional money via note or otherwise if any would make you feel comfortable enough with the deal to take it? Thanks!
Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
11y
I think the bank has to be willing to take a principal reduction in that deal for the numbers to work. At 95K, it would only net roughly 89K with agents commissions, assuming not seller assistance or other costs at closing.
Is it all owed in one loan? If there is a second mortgage, that lender way be willing to take a small fraction, since they currently have little to no equity.