BiggerPockets

Hi maybe someone here can help. I want to buy a house I cant get a loan. The owner would love to do a wrap around for a few years. However he is upside down because of the dreaded PMI
His payment on this EMPTY house is 2500. I can only afford 1600. a month. Would it be possible to put 16,000 to 24000 in a account with 7-8 hundred added to my payment each month? until I can get my own loan? I believe this property is a good investment as it is waterfront. Although it needs work & I can live in it unless I do some work. The owner paid 260,000. 2 1/2 years ago. I believe he got 6%. Hes asking 279,000. neg ( he has a realtor) but he showed me the house hisself.Anybody ever done anything like this? Anyone?

Why can't you get a loan? Where is the 16K to 24K coming from? Can you negotiate a short sale?

I did not get the just when you said the property is upside down due to PMI.

Do you mean negative cash flow. Is this a SFR or duplex?

There are a lot of factors to think about when making this decision:

1. Can you afford the payments
2. What is the value of the property
3. How long you plan on living in the home
4. What is the rate and term on the mortgage.
5. Is the seller willing to give you cash for the negative equity

Financing is tough right now and there are some good deals but getting into a negative equity play just because of seller financing does not make a lot of sense.

Good luck, jph

I guess my first question is why has the home appreciated in last 2 1/2 years. He bought it around the peak of prices and now you are paying roughly 8% more than he did and the home needs work? I guess I don't understand the price increase

If he paid $260K and has a 6% fixed rate 30 year loan, his P&I payments would be only $1558/month. PMI might be a couple of hundred, maybe $300. The rest of it, I guess, is taxes and insurance.

If you mean you can only afford $1700/month, and by that you mean the complete PITI payment, you can't afford this house. If you can't afford to put 20% down, you'll have PMI, too, whether you buy it now or in three years. So, your payments are going to be close to that same $2500/month.

Is that $329K appraisal very recent? Like in the last month or two? Even if its correct, and you're thinking you'll avoid PMI by doing a refi that's under 80%, you'll need to have a loan balance on the refi that's under $264K. The refi itself will cost you probably $6000, so that means you could only afford to pay off $258K. Your payments would then still be $2200-2300. I just don't see how you can afford this house unless you manage to save up a huge down payment.

There are no guarantees in real estate investing. Its just not the case that "eventually get any money spent back". Especially when you consider the time value of money and inflation.

Overimproving, meaning spending money for improvements that don't return you 2x or 3x the money invested, is a sure way to lose money in the business.

It sounds like you're thinking of this as a flip. Maybe one you would live in for a while, but a flip nevertheless. If the $329K value is accurate (only you can establish that, an apprasial, especially one you don't pay for, is of limited value), then you should apply the 70% guideline. The most you can pay is 70% of the ARV (after repaired value). That is $230K. And, you subtract off any work you need to do. Paying $280K might be OK if its your dream house and you're going to live in it for 10 years. As an investment, its awful.