What strategy would you use on this property?

4 Replies

I have a motivated seller who cannot afford to pay her mortgage anymore and will let it go into foreclosure if nothing is done.

The property has $730,000 in loans

They Owe $440k / 39% equity

The average sold in the neighborhood is $659k

Never had a seller like this and new to real estate investing. I am grateful for any advice you have to offer.

I was thinking Lease Option?

@George Cairncross 

Unless you can do a short sale and get the bank to take a loss. There is no deal. They don't have anything in equity because of the 730k in loans.

Originally posted by @George Cairncross:

The property has $730,000 in loans

They Owe $440k / 39% equity

Do they owe $730k or $440K? That makes all the difference in the world. The $440K is an easy deal. Any sales price over $440k plus closing costs is cash in their pocket.

If they really owe $730k then they are up a creek without a paddle and the only two options would be a short sale (which they have to work with their lender to accomplish) or just stay in the house until they are foreclosed on and are evicted. If they stop making payments (might as well), then they get to live "rent free" for months maybe even years.  

You mean they owe $440K of the $730K? Otherwise your underwater and dead in the water. Move on!

If this is the case, then you have some options.

First step is talking to the bank, with the owner, in taking over the payments. This may help the owner get something out of the deal (credit save, keys for cash if in foreclosure). Or buying it from the owner outright, but you need to get a loan. First option is cheaper.

Once secured in your name, then you can do the lease option and hope to make a good profit in a couple of years, with a good down upfront to play with. Be prepared to put that back come decision time. You can realize a goodly profit, but it takes time.

You can also sell it for 70% of ARV ($486.5k) which gives you a little over $40K, minus costs or God forbid extensive repairs. Use that money to move on to your venture.

Or, sell immediately, after repairs, for a little under recent solds ($600K) for bigger payout of over $160K, minus costs. It may take some months, so be prepared to pay out-of-pocket. Winter is soon approaching, too.

Taking over the payments is not as easy as it seems. Assuming a loan requires (1) that the original mortgage allows for it which is rare these days, (2) the buyer will have to meet the same qualifications as getting a new mortgage, (3) there are closing costs and (4) often the interest rate is much higher than current rates which means the property will cost you more. 

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