Sellers underwater. What would you do?

15 Replies

I was recently approached by a motivated seller that's is currently upside on his mortgage. It's a condo that currently is worth 70k, and he owes 90k.

Between condo fees and the existing mortgage, operating expenses end up being around 950 per month. I believe that we could get 1200 per month in rent so we would Cashflow about 250 a month.

He basically told me he would sell the place for what he owes. He has no interest in becoming a landlord himself.

I was thinking this could be a good sub-2 candidate.

Would you take this deal? How can I sell the idea of " subject to" to this seller?

Wouldn't be worth it to me unless I wanted to live there myself but if that were the case then I could buy a condo next to his for 70k or less.  You could try to get a master lease and then sublease his place for the extra 250 and treat that as management costs and let him pay for repairs etc.

I wouldn't do it. I'm a noob and may be wrong but with the 50% rule it would only leave you with $600 so you would be out of pocket for $350/month.


I dont think the 50% rule applies here because its a condo. There isnt really much in terms of operating expenses because water and gas is covered by the condo fee. and PITI works out to be around 700 dollars. So if my total monthly cost is 950 and I can rent it for 1200. id make 250 per month. If I dont have to bring anything to the table because im taking title with no down payment, thats basically free cashflow is it not?

I end up helping the seller get out from having to make payments on a condo he no longer wants, and i get a few hundred dollars extra to add to my portfolio.


How many years are left on the mortgage? If it's a silent assumption it would probably not hit your credit so it would be a free property after it's paid off at the cost of having to keep is occupied with a paying tenant and maintaining it but this could be a small hassle if the tenant pool is good.

Perfect for someone who would not otherwise be able to get a property or doesn't want the hit on their credit.

I feel like if you have to explain anything to a guy who is upside down on his mortgage and would be losing 20k+ in any other scenario then it may be to much of a headache to begin with. If you feel like the rental market is there, then is $250 more per month then you currently are making.

@Jassem A.  

 Theres 12 years remaining on the mortgage. Not a terribly long period. And rental growth in the area is projected to be good because the area is gentrifying and developing culturally. So i would expect rents to stay strong if not climb higher in the next few years.

I figure I hold it for 5 years and refinance to reduce my loan payment. Properties in massachusetts have been seeing appreciation over the last 2-3 years, so I would expect the unit to rebound in value during that time.

12 years isn't bad and it means when rates drop lower again you can refinance for 30 years and get more cash flow and not have to worry about the lender calling the loan.

Is the condo in Lowell? I see a duplex in Lowell for 55k both units 3/1 on the MLS right now. Looks like it may need some drywall, paint and cleaning since there's fire damage.

yeah the condos in downtown lowell actually. Do you know the area? Lots of redevelopment, Good for the young professional.

Don't assume there are no additional expenses for a condo. If the A/C or water heater goes, it's on you. How old are the mechanicals? Be sure there are no special assessments coming up or major projects like roofing, paving, etc.


Yes there would be some due diligence involved. But I think things like new AC unit and water heater are small ticket items are can be chalked up to the cost of doing business. But a special assesment that raises the price of the condo fee will affect my bottom line short term. I will find that out.

Do you have any insite on the proposed structure of the deal? Sub-to sound like a good idea?

In your 950 are you accounting for maintenance & insurance? If not, your still looking at over hundred dollars per door which is ok around these parts. I have a condo in haverhill like that and its not the best in terms of cash flow but we have good tenants and like you mentioned the appreciation has been pretty good. 

I would drop the mortgage under your name and you can refinance out. Just keep solid reserves incase anything comes up. 

Be sure to include a reasonable monthly deductible in the lease agreement with your tenant, in addition to the usual security deposit.

Also consider a home maintenance warranty.

Also, save the 250 per month, that's 3000 per year. That's a good reserve for larger repairs. If the lender makes a snit about the sub2, you can offer a couple grand to get a letter allowing the conveyance (not an assumption or guarantee, though). Then you're safe with a free cash flowing property.

Non-recourse 100% instant financing is like mana from heaven. Try to find a way to make it work.

@Rob L.  

. yeah the numbers i reported here account for the condo fee(water sewage and trash and general common area upkeep) and PITI. It doesn't take into account future general maintenance like holes in the walls a broken sink or anything like that though. I manage a few buildings nearby so things like that would be easy for me to take care of should they arise.

@Jeffrey Smith  I agree one hundred %. theres little risk on my part if we can secure it with no money down. 

Make sure you can rent the condo some associations won't let you rent it or have LONG waiting lists.. That was my issue when I looked at potential condos as a rental investment

Make sure you can rent the condo some associations won't let you rent it or have LONG waiting lists.. That was my issue when I looked at potential condos as a rental investment

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here