[Subject to] would you buy a house with negative equity?

6 Replies

in a subject to, would you buy the house where the homeowners owe 150k and the house is worth 100k, BUT, it produces you $300 cash flow each month? Would it be worth it? The tenant would be paying the loan, no?

I can see both sides to this question. Personally, I would avoid doing a deal like this because of the opportunity cost: you could alternatively do a deal that cashflows and has equity.

The due on sale risk for this could also be very high, since the homeowner is underwater on the mortgage.

without any data I would bet it doesn't truly cash flow $300/month as a long term average cash flow.  Thus I would be far less interested in a negative equity property.  If the cash flow is actually there I would still be hesitant because it would take years before I wasn't negative equity.  That is a long time to hope nothing catastrophic happens.

Finally, we are somewhere nearer the top of the real estate market than the middle so over the next couple of years you may gain even more negative equity.

Why take that risk? just find a better property.

Even if I was getting it for free, I would pass. I don't want a home 30% upside and to incur liabilities and future expenses. Your note on the 50K reinstatement shows that this would be a horrible idea as you essentially are burning Est. 50K to obtain a property and you'd still have 0 equity. I wouldn't touch something like this unless if I was buying it as a short sale.