Originally posted by @Ron S.:
You have to talk numbers first. Is there any value in the home above what the anticipated auction amount is? Is that value at least 20% above the purchase amount to avoid MI on your subsequent permanent financing? Are you in a position to know the condition of the property? Meaning, is it without section 1 repairs being needed (Good roof, mechanicals, health and safety)? Are you financeable (Documented two year work history and good enough credit)? Do you intend on occupying the property and if not, are you able to cover the difference in the requirements of LTV from an institutional lender (20-40% equity position)? Get a "YES" to all of those and then you move on to your scenario.
Are your "Friends" going to sell to you at acquisition cost and if so, how long are they going to allow you to obtain permanent financing? What are you going to do in the interim? pay them interest only? Amortized? Are you going to have that all spelled out in writing beforehand? What if you have something happen to you in the interim and are left with a balloon payment or if the property has issues that you were not aware of subsequent to the purchase? Are you going to cover those costs or leave them holding the bag?
There is nothing wrong or illegal with your proposition. Will it work? That's the bigger question and many "Friends" cease being friends when mixed with business.
Ron those are very good questions and I have considered them before making this post. I would do my due diligence and not bid on a home (or too high) unless it will remain profitable. I have been pre approved w/ a good credit score and income and will get everything in writing before a bid is ever placed. I do plan on living in the house, unless it is more profitable not to. I would like to live in it for a couple of years and then turn it into a rental (of course only if the numbers work out). I do not claim to know all there is about buying foreclosures at auction but I plan to take my time and do what I can to be positive this is a good deal. The only thing that worries me is buying a home w/ unforeseen issues, are you able to get a home inspection before the auction? I don't think you can but maybe in some cases? I do have family and friends in real estate and plan to call on them for assistance.
I should have been upfront about my "friends," they are family that I have a very good relationship with. They are of retirement age and have expressed interest at buying foreclosures before. My idea is for them to have a short term investment while I have a long term one and repeat if the deal is successful. I would like to buy the home from them asap after the auction, I will be pre approved and hopefully we can get it done in a matter of weeks. I plan to split the instant equity with the sellers 50-50. example: They buy a home for 50k and the current value of the home (before repair) is 80k, so they sell me the home for 65k. Is this a fair deal for both of us? I realize it would be better if they loaned me the money but that is not an option for this deal. Also, I am looking for a home that does not need major repair.
Thanks for your responses.
