http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#comments Comments from 'Diary of a creative investment deal ' in Phoenix Investing : Motiv8td at BiggerPockets.com http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1603 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1603 It's nice to start learning about the daily real estate adventures of Nick! You've joined a great club of folks who are doing a wonderful service to others by sharing the in's and out's of your real estate life. I can't wait to see how this progresses! Sweet! BTW - Rumor has it that Mr. T has already subscribed! ;) http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1604 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1604 "Shorting the 2nd, and purchasing the 1st "subject to" will not only help Bob, but will create nearly 40k of instant equtiy for myself. I'll have to subtract my cost that I'll incur by paying off the 2nd leaving me with nearly 35k of equtiy and potential" ???? WHAT THE HELL DOES THAT MEAN!!!!!!!!!!!!!!!!!???????? Completing the "short on the 2nd????? I don't want to sound like an idiot here but.......(I guess I am if I have to ask...huh?) Please explain SLOOOOWWWWLLLYYY, and with detail (if you don't mind) http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1605 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1605 naw! I don't mind :) what that means is I'll be offering the 2nd position lien a "short" payoff amount for them to go away thereby leaving only the 1st position lien against the property. then I'll purchase the property while keeping the original mortgage in place hence the term "Subject To". In easy to understand terms I'll basically "take over payments" Does that help? http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1606 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1606 Nick, How do you know that the 2nd lien holder will take the 5k short? http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1607 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1607 Short meaning your giving them less than owed. How do you know it'll be accepted? What amount would be fair? Do you pay that out of pocket? Or after it sold? Where does that payment come from? Sorry about all the questions, just trying to grasp what you saying http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1608 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1608 Great start. I'll check back to see how this deal progresses. Thanks http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1609 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1609 The seller has already contacted the bank attempting to get help from them, they told him there was nothing they could except for to short sale, so I feel confident in that respect. I've been hearing BofA is starting to take 5% instead of 10% on 2nds so I'll be going in at 5% with the understanding that I have a good chance at settling at 10% which is fine. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1610 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1610 So you'll have to come up with (probably) $6000? Having lease option buyers, this is something you've already lined up via marketing for them? So if you find a lease option buyer, "Bob" moves out, the new buyer moves in, you collect an "option fee", and the new buyer makes the current mortgage payments or whatever you set the payment at to make a little more per month if you choose, since you now control the property? Just trying to see all the options here http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1611 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1611 Nick- Great start on the property, and its great to see another homeowner helped out. Let me ask a few questions, which I know you thought of, but its more for community help since your strategy is more advanced. You mentioned the homeowner has already talked with the bank, which gives you confidence that the short will go through on the second mortgage. What about the first mortgage, is it current or does it need to be brought current? If so are you paying it or is the homeowner? How will that affect your profit margin? If the first mortgage company filed a NOD, how much time do you have to bring everything current and short the second? Thats all I'll pester you with now. Nice job again, looks like I learned from the Sub2 Master! http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1612 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1612 Sounds like a good deal, Nick. My question for you is, how did you find this particular distressed seller? http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1613 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1613 Norm - yes, there is that real possibility of coughing up 6k. yes again on the Option money, I'll sell the property via L/O and collect an option fee upfront and charge a predetermined amount above my PITI costs. Justin- both mortgages are current. Once I close on it the payments will be my responsibility. It won't "affect" my profit margin simply b/c I'll easily get a L/O tenant in the property paying me an option fee and a premium monthly payment. Locatelli- distressed sellers are everywhere! you probably stand next to at least 1 everytime you're in the grocery store check out line. The trick is letting them know who you are and not what you do but "how you can help them" This seller made a decision and luckily for the both of us it included me in the mix. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1614 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1614 I have to write something to get that"subscribe to comments thing out of my way I can't see the one line of the reply http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1615 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1615 Wooosh...that's better http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1616 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1616 Did he call you? Via bandit sign, website, referral, word of mouth? I think that's what Rao was asking. Thank you for bringing a lttle light to my "darkness" http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1617 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1617 a referral from a website. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1619 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1619 I, like Norm still don't understand the math. $80K 1st +$60K 2nd = $140K House worth $120K - That's $20K negative equity. If you keep the 1st intact and you short the 2nd by 10% ($6,000 less of the total 2nd) the total owed is still $134K. You still at negative equity of $14K. Am I crazy? What am I missing here? http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1620 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1620 My bad, shorting the second means paying 6k to knock out the 60k. 80k 1st + 6k 2nd = 86k total house is worth 120k as is = 34k equity I will be going in on the second @ 3.5% of balance and testing what I've been hearing about this BofA taking 5% on 2nds understanding that worse case scenario I'll pay them off at 10% which is fine, still plenty of room for profits. did that explain it? I apologize for not catching what you meant and appreciate your questions and comments http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1629 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1629 Yes. Much much better. If you can pull it off, all the power too you. I am, though surprised that BofA would settle for so low. I have my two mortgages with them, three business accounts and my personal financing and they are great to deal with (As oppose to Wells Fargo whom I have another business account with.) But going that low is quite surprising, but GO NiCK GO.... http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1630 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1630 It's not uncommon, matter of fact that is the biggest way to create profits when doing normal short sales is getting the 2nd to agree to such a low payoff amount. You can easily get the 1st position to accept a lower payoff but its never 10%. Shorting the 2nd position will be the easy part, seeing if they'll take 3.5% will be kicker, knowing that I'll probably end up paying 10% which is still fine, there will be plenty of profit margins even at 10% There is nothing different between executing this strategy then there is executing a normal short sale other than I'm not shorting the 1st only the 2nd. The method is the exact same, paperwork and contracts are all the same. Once I get the acceptance letter I'll post an image of it so you all can see what my negotiator ended up getting accepted for. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1632 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1632 In away it does make sense since if the property goes to foreclosure, the 2nd would most likely get nothing, so it's better to settle for something. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1633 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1633 exactly, that's the premise behind short sales. You get the first to take a discount and tell the 2nd to kick rocks or else. Now it does get better, the 1st and 2nd are with the same bank however they are dealt with usually by different departments and almost always different lender negotiators. I don't expect this to be a problem as they haven't in the past. Of course I'll keep everyone updated as I move along. I have made some updates already in different posts, make sure to check those out as well. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1639 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1639 Nick, Awesome post. I have a couple of more questions for you: 1. Do you have certain documents/letters that you use for presenting a short sale offer? 2. Does the game change if the owner has a HELOC in 2nd position? Can you short sale a HELOC? http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1640 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1640 2nds are usually HELOC's and they're worked the exact same. I just present a normal short sale package, whatever the lender requires to complete a short sale. I don't have or use a magical letter or document, there are some out there that hype a special secret if you give them a bunch of money. The truth is that's all crap. http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1657 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1657 From what I understand, the owner was current on payments, correct? I thought he'd have to be behind X amount of payments, kinda like a hardship, and prove that to the bank via a letter and bank statements etc...that he's having trouble? Was the seller anticipating problems? http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1658 http://www.biggerpockets.com/blogs/355/blog_posts/1978-diary-of-a-creative-investment-deal-#c_1658 that is a myth that the owner/seller must be behind, anyone who tells you otherwise is probably "faking it till they make it" type of person. The seller is anticipating a hardship and will not be able to keep up the payments any longer. That will be addressed when shorting the 2nd. We will do this by showing in the financial information sheet his reduction of income and the savings he's used up trying to stay current. His hardship letter will address the reasons in which he's had a reduction in his income.