Break-even Property

Hey guys and gals need some insight in regards to a investment that I am working on.
Purchase price $1000 (thats the great part here comes the bad news.)
Water Co lien:$14k
Possible Mortgage lien:$26k
Comps in the area place the value at $40-$50k.
It is not in the best area but I can rent it out for $750-$900/mnth
The reason I am considering this deal is a can't qualify for ordinary financing to get any other property so I knew that I had to get creative. This will be one of my first deals and I want to see it work in my favor. I had a title search done and thats how I know about the liens that are listed on the property, I am going to have the owner just sign over the deed. In other words just do a "handshake" agreement so that I do not have to pony-up the whole $40k up front for the liens. I figured if I hold it and continue to rent it out until I have the capital to pay the liens or hold it until I have the means to qualify for regular financing then refi and pull the cash out (I don't think banks do a title search for refis...... do they...) and just buy more properties using this one as leverage. Well these were my ideas and potential exit strategies on how to make this work any insight would be GREATLY!!!!!!!!!!!!!!!! appreciate.
Thanks all and best of luck with your investments.

Edited: 06/26/2010 at 08:52AM

Rich Weese

Real Estate Investor · sioux falls, South Dakota

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Icon_minipost Jul 06 '09, 12:13 PM

Here are some thoughts and I'm sure you'll get more. You're paying 41K without costs or any repairs for a home in an area of 40-50K homes. That is really high to value purchase.
I understand that you need to be creative, however, either the water co or the mortgage lender could foreclose when they see fresh blood in the deal. Are you prepared to pay that off if they do? Any staying power if unable to get it rented for awhile? Strategy for selling or reason for buying? Flip? Sale? Long term. Overall, the risk seems very high for low upside potential, imo. Rich.

Edited: 06/26/2010 at 08:52AM

Jesse R

Rehabber · El Paso, Texas

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Icon_minipost Jul 06 '09, 12:33 PM

Bad deal!
You won't collect enough rent to buy the property before the mortgage holder forecloses on you.
Not to mention,(even if you can pony up the cash) after paying all the liens off you're still getting into the property at it's normal fmv.

Edited: 06/26/2010 at 08:52AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Jul 06 '09, 01:37 PM

Sounds like you're talking about a subject to deal. That's good. It has a HUGE water lien. That's bad. As Rich and Jesse point out, you're paying retail for this property and that's always a bad idea.

Call the water company and see what's the least they will take to clear the lien. If you can get them to take just a few grand, this might be OK.

Tell the owner they get squat. Even $1000 to the owner is too much.

Yes, lenders do title searches and require you to buy a lenders title policy for a refi.

Are there back payments on that mortgage? If so, you'll need to make those up in short order to avoid a foreclosure.

If you could get this as a pure subject to with a $26K note, it would be a good deal. With $41K in encumbrances, its a bad deal.

Edited: 06/26/2010 at 08:52AM

Jon Holdman, Flying Phoenix LLC

Adam A.

Real Estate Investor · Philadelphia, Pennsylvania

3 posts
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Icon_minipost Jul 06 '09, 08:19 PM

Thanks guys I really appreciate the wisdom. I am really hoping that the mortgage isn't on there, so that the only thing I have to worry about is the water lien. By the way can the water dept foreclose on a property?

Edited: 06/26/2010 at 08:52AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Jul 06 '09, 10:13 PM

Not sure. Call them and ask. A discussion with the water department is certainly in order at this point.

They can lock out the water, which is about as bad as a foreclosure. Leaves you with an unusable property.

Edited: 06/26/2010 at 08:52AM

Jon Holdman, Flying Phoenix LLC

Corey Demuth

Real Estate Investor · Queens, New York

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Icon_minipost Jul 06 '09, 10:22 PM

how on earth can you owe 14k to the water company???? how does one even use that much water???

Edited: 06/26/2010 at 08:52AM

James Hiddle

Real Estate Investor · Altus, Oklahoma

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Icon_minipost Jul 07 '09, 05:39 AM

Originally posted by Corey Demuth

how on earth can you owe 14k to the water company???? how does one even use that much water???

LOL I was thinking the same thing. Sounds like the owner was taking lots and lots of baths either that or was having hot tub parties every night :mrgreen:

Edited: 06/26/2010 at 08:53AM

Jon Klaus

Real Estate Investor · Dallas, Texas

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Icon_minipost Jul 07 '09, 06:19 AM

Originally posted by Mr_Investor

Originally posted by Corey Demuth
how on earth can you owe 14k to the water company???? how does one even use that much water???

LOL I was thinking the same thing. Sounds like the owner was taking lots and lots of baths either that or was having hot tub parties every night :mrgreen:

I'm thinking open fire hydrant on the WRONG side of the meter. Or a leaky toilet, for 100 YEARS!

Edited: 06/26/2010 at 08:53AM