Equity and Different Solutions for Homeowner

[E J]

Ok, so I'm trying to figure out what I'm going to say to homeowners after they give me their property information. It seems as though the level of equity in their property has a big impact on what the seller's options will be. I want to narrow this down to a specific process that I will repeat with every seller. So far I have:

Equity > 35%, make cash offer
Equity < 0%, offer to negotiate short sale
0% < Equity < 35%, not enough room to make a cash offer, what do you do?

Also, do you guys do anything like negotiate mortgage modification, forbearance agreements, and deeds in lieu or is short sale what you recommend when someone is upside down?

[Bryan Hancock]

Other ideas:

Originally posted by E J:

So far I have:

Equity > 35%, make cash offer

How about offering the seller terms for their equity? A cash offer will generate a bigger spread in most instances, but do you have enough cash lined up to do this continuously? Or enough private money?

Originally posted by E J:

Equity < 0%, offer to negotiate short sale

Really not much else to do here. Some investors I know do home tendering agreements on short sales that are in process where the homeowner leaves.

Originally posted by E J:

0% < Equity < 35%, not enough room to make a cash offer, what do you do?

Many things...Most of which involve being the equivalent of a subprime lender. In today's environment "subprime" still yields some pretty credit worthy borrowers because banks are freaking insane right now.

1. Purchase sub-to and do a wrap sale or CFD
2. Purchase sub-to and do a lease/option
3. If you are banking on appreciation purchase sub-to and lease to cover SOME of your holding costs
4. For really thin equity organize a mortgage assignment between the seller and a new buyer

Note that these deals are thinner and you need to exercise caution to minimize risks. Sometimes you can get the seller to agree to make some payments while you market the property to minimize holding costs while you find a qualified "subprime" tenant/buyer.

Originally posted by E J:

Also, do you guys do anything like negotiate mortgage modification, forbearance agreements, and deeds in lieu or is short sale what you recommend when someone is upside down?

Mortgage modifications may work okay if you do a mortgage assignment on a deal with thin equity. I have heard of modifications involving reduction of principal, but I think these are exceptions and a short sale is generally a better strategy unless the owner can carry payments. Note that I am not a short sale guy because I think they are a waste of time in Texas so others can help you more here.