#1 Creative Real Estate Financing ContributorPosted Moved to Austin for work and purchased a home in 2021 with just under 4% interest rate. Due to circumstances at the time I was able to put 0% down without PMI. Fast forwards to 2025 and I need to move again for work. Since purchasing the home, housing market in my area has declined about 20%. This puts the home underwater.
I've calculated the following two options:
Both options loose the same amount by roughly 2 years, and by this time, I still will not have built up much more equity in the home to make selling it a break even unless there is price appreciation by then.
My dilemma is this: I speculate that my home will not appreciate much in the next 3-5 years due to the rapid pace of development in the surrounding area.
In 5-10+ years, maybe, but by then I'll have bled $150,000 - $300,000.
I have thought about this a lot and feel that I mar'-too close to the problem to see the best solution.
Any constructive advice would be much appreciated.
#1 Creative Real Estate Financing ContributorPosted Hey everyone,
I'm evaluating a multi-family deal and could really use your insight. The seller is offering seller financing at 2% interest with a 9-year balloon. On the surface, the deal seems appealing, but there's a catch: the asking price is $475,000, which is about 18% over the market value (based on comps and DealCheck estimates around $402,000).
I like the cash flow and see the potential for increasing rents, but I’m hesitant about overpaying. I’m considering countering with a price closer to the market value, but I’m curious how others approach deals like this.
Looking forward to hearing your thoughts! Would you jump on this, or is the premium too steep?
Thanks in advance for your input!
#1 Creative Real Estate Financing ContributorPosted I did a loan assumption that is currently a GIANT pain in the ***. I’m here to share my story for whatever that’s worth.
Over a year ago I did a wrap around mortgage on a place here in Phoenix at 3.5% over 27 years. Everything was smooth until it wasn’t. 6 months into it the tenant called and the toilet had failed in an upstairs bathroom. The house was flooded to the tune of $70,000 in repairs.
No big deal, I worked with insurance and contractors to get the repairs done. Six months later my insurance dropped me and here is where it gets sticky. I got a new insurance policy at a higher rate. I let the original borrower know they needed to update the lender on the new insurance policy.
The higher insurance premium required a higher escrow payment which the original borrower didn’t let me know. A few months go by and unbeknownst to me the escrow account had now drawn negative which triggers the lender to no longer apply what’s considered a “partial” payment to them, given that I’m now paying less that what’s due given the escrow increase required but not relayed to me even though I expected it at some point.
Last month I’m on Zillow looking at the value of my properties. One of my properties says it’s going to auction in March because it’s being foreclosed on. My heart rate goes through the roof as I have about $90k in equity in that house. I reach out to the original borrower and ask them what’s going on. They weren’t paying attention to it, and why would they, it’s not their house anymore.
They send over 3 months of notices from the bank. $10,000 has been collected by the lender and is in an “unapplied” status due to the short payments. They are foreclosing and are not open to discuss it. I call them, they won’t speak to me about the loan at all BECAUSE ITS NOT IN MY NAME.
I have to sell it, but guess who has to request the payoff amount from the lender….thats right, the ORIGINAL borrower. So I am at the mercy of that person for basically EVERYTHING.
I am still waiting on that payoff amount 9 days later and am up against a clock where they have scheduled the home for sale at auction come March.
Take it all for what it's worth, I've learned plenty of lessons and made my share of mistakes. One thing is for sure, if I ever wrap another mortgage I am getting a POA to access the docs on the original loan so that I am never again at the mercy of that borrower to relay information. If it wasn't the insurance it would have been the property taxes. FFS
THE END.
Let me know what you would have done differently?!
You are correct re the POA. Actually, to allow access it is an authorization. We use the POA to allow for signing escrow refunds and claim checks.
A couple other notes. You also need to change all contact information to you - all email, phone, address. Another thing is the insurance is sent to the bank from your insurance provider and the seller should never be needed as long as the documentation has been completed correctly.
This is why you must vet the law and title office you are closing with to make sure they know how to handle these transactions. A law degree does not mean you know anything re wraps.
If worse comes to worse, you can stop the foreclosure with legal action - it costs some but you will not lose your equity.
I would not throw the baby out with the bath water re doing wraps and I do hope all works out for you.
Reach out if you need a referral to a good AZ attorney to help
Be careful out there guys
Alan
Not to be too blunt, but you are handing bullets to a six year old with a gun. He obviously will only get himself into more trouble because he now knows 1% more than he did, but not nearly enough to keep out of trouble. And, in my opinion, more importantly, the lurkers who never comment, now believe they have the "golden key" of information.
As you already know, there is so much more to this, in order to stay out of trouble over the long term.
He believes he can find all that he needs to know on the internet. Which of course he can. You can find everything you need to know in a grocery store to make
Pumpkin spice loaf with almond praline dessert, too. But that doesn't mean you know the right ingredients or can assemble it without disaster. And it might not look very tempting when put together.
This part is for anyone reading this who never comments:
My humble advice to anyone attempting to do creative finance is:
Creative finance is for experienced investors who have access to capital if everything goes wrong.
And yes, there is much more. You can learn these things over time.
.
Yes, use an attorney for contracts & closing. Always. A good attorney will even warn you if you are doing something illegal.
As you can see from the list, a wannabe or "self taught" or poorly trained by videos or in a "community", does not provide the breadth of knowledge & experience to keep people out of trouble. (Just my humble opinion)
Someone on Youtube who claims to be someone important, and has a "community", just said in a video, he is doing "kitchen table closings" since it's "convenient and he knows what he is doing. That becomes a "he said, she said" in court and I'd bet most judges would side with the plaintiff. ;-)
#1 Creative Real Estate Financing ContributorPosted Someone asked for more detail on Creative Finance. I always look at the exit strategy for the property to determine which kind of Creative Finance I would use. Sometimes I actually walk away from the deal - Not All Creative Financing Deals Make Sense.
I use a spreadsheet I developed to determine my entry costs, carrying costs, cash flow, tax write offs, appreciation and exit costs. I can tell in five minutes if it's a deal or not. Don't waste a lot of time analyzing. Make offers, then when someone says they will consider Creative Finance, that's when you make the suggestion. But, know what you want to accomplish beforehand.
Creative Finance is a great way to buy properties when done properly and lawfully.
Some types of Creative Financing include: Seller/Owner Financing, Land Contract, Wrap, Assumption, Subto, Lease Option, Contract for Deed. There are a couple of others less commonly used.
My humble advice to anyone attempting to do creative finance is:
Creative finance is for experienced investors who have access to capital if anything goes wrong.
And yes, there is much more. You can learn these things over time.
#1 Creative Real Estate Financing ContributorPosted I did a loan assumption that is currently a GIANT pain in the ***. I’m here to share my story for whatever that’s worth.
Over a year ago I did a wrap around mortgage on a place here in Phoenix at 3.5% over 27 years. Everything was smooth until it wasn’t. 6 months into it the tenant called and the toilet had failed in an upstairs bathroom. The house was flooded to the tune of $70,000 in repairs.
No big deal, I worked with insurance and contractors to get the repairs done. Six months later my insurance dropped me and here is where it gets sticky. I got a new insurance policy at a higher rate. I let the original borrower know they needed to update the lender on the new insurance policy.
The higher insurance premium required a higher escrow payment which the original borrower didn’t let me know. A few months go by and unbeknownst to me the escrow account had now drawn negative which triggers the lender to no longer apply what’s considered a “partial” payment to them, given that I’m now paying less that what’s due given the escrow increase required but not relayed to me even though I expected it at some point.
Last month I’m on Zillow looking at the value of my properties. One of my properties says it’s going to auction in March because it’s being foreclosed on. My heart rate goes through the roof as I have about $90k in equity in that house. I reach out to the original borrower and ask them what’s going on. They weren’t paying attention to it, and why would they, it’s not their house anymore.
They send over 3 months of notices from the bank. $10,000 has been collected by the lender and is in an “unapplied” status due to the short payments. They are foreclosing and are not open to discuss it. I call them, they won’t speak to me about the loan at all BECAUSE ITS NOT IN MY NAME.
I have to sell it, but guess who has to request the payoff amount from the lender….thats right, the ORIGINAL borrower. So I am at the mercy of that person for basically EVERYTHING.
I am still waiting on that payoff amount 9 days later and am up against a clock where they have scheduled the home for sale at auction come March.
Take it all for what it's worth, I've learned plenty of lessons and made my share of mistakes. One thing is for sure, if I ever wrap another mortgage I am getting a POA to access the docs on the original loan so that I am never again at the mercy of that borrower to relay information. If it wasn't the insurance it would have been the property taxes. FFS
THE END.
Let me know what you would have done differently?!
You are correct re the POA. Actually, to allow access it is an authorization. We use the POA to allow for signing escrow refunds and claim checks.
A couple other notes. You also need to change all contact information to you - all email, phone, address. Another thing is the insurance is sent to the bank from your insurance provider and the seller should never be needed as long as the documentation has been completed correctly.
This is why you must vet the law and title office you are closing with to make sure they know how to handle these transactions. A law degree does not mean you know anything re wraps.
If worse comes to worse, you can stop the foreclosure with legal action - it costs some but you will not lose your equity.
I would not throw the baby out with the bath water re doing wraps and I do hope all works out for you.
Reach out if you need a referral to a good AZ attorney to help
Be careful out there guys
Alan
Not to be too blunt, but you are handing bullets to a six year old with a gun. He obviously will only get himself into more trouble because he now knows 1% more than he did, but not nearly enough to keep out of trouble. And, in my opinion, more importantly, the lurkers who never comment, now believe they have the "golden key" of information.
As you already know, there is so much more to this, in order to stay out of trouble over the long term.
He believes he can find all that he needs to know on the internet. Which of course he can. You can find everything you need to know in a grocery store to make
Pumpkin spice loaf with almond praline dessert, too. But that doesn't mean you know the right ingredients or can assemble it without disaster. And it might not look very tempting when put together.
This part is for anyone reading this who never comments:
My humble advice to anyone attempting to do creative finance is:
Creative finance is for experienced investors who have access to capital if everything goes wrong.
And yes, there is much more. You can learn these things over time.
#1 Creative Real Estate Financing ContributorPosted @Katie Southard This is the floor plan. there is another but that does not have a separate car garage and has private entrance only from the side.
#1 Creative Real Estate Financing ContributorPosted I would never give the party on the opposite end of the transaction POA over the property, or my social, DOB etc. Who would do that?
People doing crazy stuff lately.
I hate to say it but it's starting to feel a bit like 2007, with sub2 being the new subprime mortgage...
It's too small of a percentage of loans for that to be where the bottom falls out. And yes that poster has a trail of his own. @Russell Brazil He closed his account, cause he needs to eat a lot of crow.
who was it?
Clearly, he doesn't cause you're the same subto guy that's been peddling the forum for the last couple of years. "Teaching" people how to do subto for $1500/mo or something like that. Perhaps longer time you've been here, I do not know. Removed and come back, or of the sort.
@Chris Seveney Poster's name was Whit B.
#1 Creative Real Estate Financing ContributorPosted I could be misunderstanding how this deal was structured, but wouldn't the seller who is on the underlying mortgage have an incentive not to let it go into foreclosure since their credit is at stake?
.
In a Wrap, Subject To, etc the ownership has changed. The seller no longer owns the property. He would be paying off a loan on a property he no longer owns. Most sellers probably would not have sold on creative financing if they had a way to get rid of the mortgage when they sold.
So, pay off $200,000 (or whatever) on a property you no longer own to save your credit? Not likely, even if you could.
Now, if the seller was free & clear (no mortgage) when he sold, the seller could enact whatever remedy was provided for in the Deed of Trust, if he was savvy enough to even do a Deed of Trust. He could foreclose and recover the property.
But, the OP states it was a Wrap, so there must have been an existing mortgage.
#1 Creative Real Estate Financing ContributorPosted I would never give the party on the opposite end of the transaction POA over the property, or my social, DOB etc. Who would do that?
People doing crazy stuff lately.
I hate to say it but it's starting to feel a bit like 2007, with sub2 being the new subprime mortgage...
It's too small of a percentage of loans for that to be where the bottom falls out. And yes that poster has a trail of his own. @Russell Brazil He closed his account, cause he needs to eat a lot of crow.
who was it?
#1 Creative Real Estate Financing ContributorPosted I’m looking to get started in the fix-and-flip business and have a few questions. I have a couple of funding options on the table and I’d love to hear your thoughts:
Any feedback would be awesome.