Question on whether to move forward?

The broker that is selling this 2 family we were interested in.. had listed it as an approved short sale and that one would need to be able to close by end of February.
Also, there were tennants renting one floor who are not on a lease but tennants at will - one of the stipulations also was that these tennants could stay at the rent they are paying (at will) otherwise if we wanted it vacant - they would need to be given a months notice and hence deal would not close by end of Feb.

Well we went to see the house and really liked it - we figured that tennants could stay as is until deal closed and then we could revisit the issue.

Asking price - 399K
We were told sellers bank had agreed to a 380K short sale - nothing less.

We found out that the home had been under contract twice before but fell through - the realtor said it was due to financing issues.

We crunched the no's and figured 380K was fair - not a sweet deal but fair and from comps it looked like FMV in this market was approx 380K.

We put the offer in subject to inspection & financing.

Offer was accepted.

We had the inspection and all was pretty much as we expected.

We had already been pre-qualified for a loan so we felt confident all would move quickly.

Anyway we received the signed purchase offer but it wasn't in the name of the actual owner it was in the name of an investor.

And from what we could gather, this investor had taken it off the hands of the distressed home owner and had worked out a short sale with the bank.

We had our attorney take a look at the draft of the P&S the seller's attorney sent over and we realize this investor has just recently acquired this house from the homeowner who was obviously in distress and apparently our bank doesn't approve such transactions ie. a seller who has not held title for minimum 60 - 90 days unless we put a substantial amount of money down.

My feeling is the seller's agent should have been more clear about this - that it wasn't a typical transaction and since financing had fell through before, i feel they should have asked us who were using and probably gave us an idea whether such a lender would approve it.

We can try now to look for a lender who can push a deal like this through and close by end of February.
I also feel this investor who has worked out the short sale has worked it out much less than 380K and is basically making a few $$ himself, why else would he be involved.

I just feel frustrated as we could have saved alot of time if everyone was up front. It was only through our attorney pulling teeth with the seller's atty did we get all the information.

I'd be interested to hear anyone's thoughts on this.

Sorry to be so long winded or confusing.

:roll:

Edited: 06/26/2010 at 07:13AM

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Feb 10 '09, 05:11 AM

Dolores, This investor is a wholesaler. You are correct that he has the house under contract for a lower price, and is making a few (or, maybe more than a few) bucks off the deal.

Yes, he should have been upfront with you. You're bumping into a common problem that conventional lenders won't do these deals unless the seller has owned them for some minimum time.

The easiest way around this is to have him assign the original contract to you. The selling bank may not allow that, though, since they will see the money he's making. That's money they're losing. You'll also see that amount, and it may make you unhappy, too. Nevertheless, if its a good deal, it shouldn't matter to you.

Another way to do it is to get a hard money lender to fund it. You buy it with hard money, hold it for a while, then refinance it. Unfortunately, that's expensive. If you can hold it for 90 days and then refi, it will probably cost you $25K or so for the hard money and refi.

Edited: 06/26/2010 at 07:13AM

Jon Holdman, Flying Phoenix LLC

Jim Doine

Real Estate Investor · Myrtle creek , Oregon

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Feb 10 '09, 08:02 AM

Originally posted by Dolores Gildea

Hi All:

We crunched the no's and figured 380K was fair - not a sweet deal but fair and from comps it looked like FMV in this market was approx 380K.

I'd be interested to hear anyone's thoughts on this.

Sorry to be so long winded or confusing.

D

:roll:

Dolores, Maybe I'm missing something but this looks like a horrible deal. Why would you pay full market value in todays market? It wwould also have to rent for $2,628.00 per unit to cash flow by the 50% rule. How do you plan on making any money on this? Jim

Edited: 06/26/2010 at 07:13AM

Dolores Gildea

Real Estate Investor · Massachusetts

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Feb 10 '09, 09:18 PM

Hi Jon:

Thanks for your comments.

Exactly what I was thinking - as soon as it was clear someone else was making a few $$ it bothered me that we had offered what the seller had told us - which was that their the bank would take no less than 380K for the short sale.

Jim, yes, it's not the best deal in the world - we would rent out one floor and the tennants would have the other floor and we would not cash flow but break even - which i felt was better than paying rent - which is what we now.

My gut is telling me to walk away - if it was a better deal it would be worth all the effort.

Thank you for your comments :)

Edited: 06/26/2010 at 07:13AM