All Forum Posts by: Harry Metzinger

In my limited experience, it seems that many banks value cash offers on REO properties. In other words, a bank will accept a cash offer that is at a lesser amount than a financed offer. I am curious in your experience, is the same true for short sales, or do banks value cash and financed offers equally? Any other words of wisdom for anyone who has successfully purchased a short sale w/ a cash offer?

@Aaron Desimone thank you for sharing your story!  It is very inspiring.  I am in the beginning stages of my real estate investing journey as well.  Even though my success cannot be measured in dollars yet, your experiences help me and others realize we are on the right track to be successful, and to keep moving forward.  Please keep the BP community posted of your progress.  Way to go!

Thanks for your insights @William Hochstedler

In this case, I was considering this possibility because...

1) Rehab is mostly cosmetic - $10K-$15K

2) My offer would enable me to buy the property w/ $50K+ instant equity (after factoring in rehab)

3) Rental cash flow would be approx. $400/mo. (before maintenance/repairs)

4) The monthly rent would be less than 25% of the couple's current gross income (according to the listing agent)

5) The listing agent believes that the current owner would be receptive to a lease-to-own to buy back the property in 2-3 years.  In such an agreement, I envision the current owner/future tenant would pay $2,000 upfront and $200/mo. to be applied to down payment in 2-3 years.  These monies would be forfeited if owner could not obtain a mortgage within 3 years.

6) Between the $2,000 upfront lease option fee and a $3,000 rent security deposit, I would have $5,000 to go toward eviction in a worst case scenario.

But these are all moot points if banks are prohibiting this.

Just read this... 

https://www.biggerpockets.com/renewsblog/2013/06/27/lease-back-short-sale/

I guess that answers my question.  If there's anything not covered in this article (and the comments that followed), please feel free to chime in here.  Thanks.

Hi BP, I am currently looking at a prospective investment property that is a short sale.  When I asked the listing agent about the property, he said that the family who currently owns and lives in the house want to stay in the house.  Without knowing the legality of it, I asked the listing agent whether the current owners would consider a rent to own (a.k.a. lease option) agreement?  My thought was they could rent the property for 2-3 years, restore their credit, and then purchase the property back from me.  Is this legal?  What should I consider before deciding whether to make an offer on this property?

Thanks @Sarah Ziehr for your insights!  In my initial offer, I offered a $1,000 earnest deposit.  The bank countered at $5,000 earnest deposit, and I had no problem accepting that aspect of their counter.  The bank accepted my latest monthly statements, which demonstrated I have sufficient funds to close with cash, as proof.  In my particular position, I see no reason to hide the specific assets at my disposal from the bank, but I take it not everyone feels this way.

@Steve Babiak, thank you for the link to that other thread.  I have a lot of respect for J Scott's accomplishments, and if that approach works for him, it should work for the rest of us.  Also a good suggestion about access to the line of credit.  

@Scott Schultz, absolutely agree that the quicker one can close, the better off we'll be. Steve & Scott, I can access my HELOC funds immediately if I submit the request through my bank's online teller, but in terms of how quickly they can wire the funds to the title company, that is something I will need to follow up on (but can't imagine how it could take more than 24-48 hours). Thank you Scott for continuing to weigh in on this topic.

Thank you @Seth Nadreau @Scott Schultz @Percy N. @Wes Brand for your replies to my latest questions.

Wes, what you recommended is the action I may try in the future.  A lender I know - and have great trust in - told me that in a number of instances, a "cash" buyer comes to the table w/ a mortgage.  Sounds like as long as the lender approves of this possibility at the outset and I have the cash funds if the mortgage falls through, then it works for all parties involved.

Thank you everyone for contributing to my thread.  I greatly appreciate it!

I have a couple of follow up questions that I would like your input if you don't mind...

1) What percentage of IRA assets would be counted as assets available for a cash offer? Hypothetically, if I have $100k in an IRA, does a bank look at that as I have $100k available for a cash offer? Or do they look at it as being less knowing the tax implications and early withdrawal penalties. (Please note: I have no intentions of liquidating any of my IRA holdings due to the tax implications and early withdrawal penalties. But this question is related to Question #2...)

2) If I make a cash offer - an offer that is supported by the amount of my IRA holdings - but then, by choice, I choose to use a private money loan rather than liquidate my IRA holdings to fulfill my cash obligation, can I do that? (Please note: I am not using this strategy with my current offer. I am asking because if this current offer works out, my money is tied up for 6 months before I can do a cash-out refi at 75% of the value of the property.)

Tagging everyone who has participated in this thread...

@Seth Nadreau @Jay Hinrichs @Scott Schultz @George P. @Darren Eady @Franklin Romine @Michael Woodward @Percy N. @Jason Krick

First of all, congratulations @Jason Krick on your first deal!  Hope that you will write about it in depth in the BP forums soon (feel free to tag me when you do so that I'm on the lookout)

I would be prepared to increase my deposit if it helped facilitate a deal.  One way to look at it is your lower initial escrow deposit worked in your favor.  

If you don't mind me asking, what was the PMP (Property Marketing Period) on the property you purchased before you had it under contract? (PMP is similar to DOM (Days on Market), but PMP also factors in time when a property may have been on the market for sale before, then it was taken off the MLS, then put back on at a later date.) My initial feel is that there is a direct correlation between a property's PMP and how flexible the lender is with accepting a lower offer on an REO.

Do you mind sharing numbers here? Estimated rehab costs? ARV? Will you look to flip or rent it afterward? No worries if not.

Congrats again!  That's great news!

Thanks @Darren Eady.  In this case, I am going to go w/ $1,000 down.  I talked to the listing agent today and I asked him a number of questions related to making a cash offer.  He gave no indication that a larger escrow deposit would make a difference.  He said having no contingencies and being able to close quickly (anything within 30 days was acceptable in his opinion) were superior factors to a larger escrow deposit.

@Michael Woodward, thanks for sharing your experiences and perspective.  I explained to the listing agent what I planned to show as support for my offer, and he echoed your thoughts.  Believe it or not, I am a real estate agent...a new one though, and one who is only holding my license for investment purposes.  I talked to my broker later today to get his feedback too.

@Percy N. Thanks for your insights.  I know someone who has been in the construction field for 30+ years, so my process has been I tour a property first, and then if the rehab seems within reason on first glance, my construction guy comes in, looks at it with me, and provides his perspective.  In this particular case, no major areas of concern jumped out to either one of us, so I am not too concerned about making an offer with no contingencies this time around.