Hello everyone. This was not expected to be my first post. My profile hasn't been completed and I haven't networked yet. I've been lurking, reading, and listening for months, trying to learn as much as I can before I dive into this business. However, a possible lead just came up and I'd like to ask some guidance. I have lots of questions. Here it goes:
There is a house on the street directly behind me that showed up on the Sheriff's Sale list in December. They just put a handwritten sign up in their yard that states: "Lease to Buy. Available Immediately." On Zillow, it states the house is 2,714 sq ft with 4 bedrooms and 3 baths. This is bigger than most houses in my development. Most are in the 2,000 sq ft range. I've been keeping a close eye on sales in my neighborhood, as it seems like it is "turning over" from older owners to younger families. They appear to be selling for around $90/sq ft+, depending on condition. This house was last purchased in 1995 for $125,000.
My ideal scenario, would be to negotiate a price below market, rehab it, and then sell it. I'm not concerned in the numbers at this point, but more so with the process. Let's say I contact the owner, and the numbers make sense for me. Then what? I do not have the cash at this point that would be required (which is why I planned on waiting before jumping in). I would assume I would need an initial payment to cover any money owed, to stop the sale. So, could I try to access private lending, or HML to cover those costs, plus rehab and holding costs? I have zero experience to date, so I know it may be difficult to get a loan, but it would seem that I would need a lot less than 70% ARV in this scenario.
Also, what risks do I assume in this kind of arrangement. What if I pay the money to stop the sale, and they decide to keep the money for themselves? Could it still be sold and I am out of luck? If I rehab it in a month or so, do I have the authority to sell a house that I currently only have a lease option on?
I guess what I am asking is if anyone could just walk me through step-by-step how you would go through a process like this? If the numbers don't work, it's obviously moot. I can analyze those after I contact them. I just need some guidance on how to go through this process.
I do have access to a REA who specializes in foreclosures, short sales, and investors who flip houses. I also have some contacts for rehab work.
Thanks in advance!
Jason, a lease to buy sign is probably a red flag meaning someone has already bought the property and is going to resell it to get maximum return. Investigate the deal, and see where it brings you. Maybe it's time for you to jump in to RE investing, if not this deal, maybe the next one.
Good luck with it.
David--Thank you! Being new; I obviously hadn't thought about that. The number is local, so I will call and see what's going on.
Either way get some numbers run them see what you come up with. Post those numbers here in BP and have members give you feed back. Even if you dont end up purchasing the property it will be a good way to start understanding the money aspect of REI. And the wonderful members of BP will ask you questions that you may not have even known that needed to be asked...
Thats how I started, and my first property I bought was from advice I got here in BP. Had to go and find numbers out that I didnt think mattered or didn't even know I should know. Learned a lot. Really a lot. A stupid ammount, my head hurt from how much I was learning. Now I have a property that throws off $300/month cashflow after I put back all the money for repairs vacancy, mortage, insurance, property managment, etc etc. Using lessons learned from that property and advice I've recieved from members here in BP, we are looking at purchasing a duplex by the end of the year that will throw off $300/door. Then next year if the money is there we will be looking to buy a four plex or another duplex hopefully in a "B/C+" area.
Thanks for the advice. Google is my friend. I googled the phone number and hit on an advertisement for an electrician. Then, I pulled the sheriff sale list. The owner has the same last name as the electrician. So, he must be family. I'm going to call and see what they are looking for. I will post the terms they are asking for later.
Well, I called the number. He is still looking to sell it at retail, and is asking 220K. Not that it matters at this point, but the lease he is offering is $1800 per month. He needs first, last and $1800 security deposit. That $5400 goes toward down payment and $400 each month does as well. Buyer agrees to secure traditional financing within 3 years.
I asked about other buyers and he said 2 could not afford it and one was on the fence. He made no mention of the impending sale, which was expected. I will go back to him in a little bit and see if he is more motivated. I don't believe he will find anyone at that price. It was listed at that price in the spring. If the house looks the same as the photos, it wouldn't need much more than a coat of paint, wall paper removal, and a more updated look on the kitchen cabinets. Obviously, I would do my DD and look further into it.
I was able to find the judgement, which amounts to 127K. So, is this number useful to me at all? Correct me if I am wrong, but my guess is that number only reflects the amount to the original lender, and any other liens would not be part of that judgement. Am I right on this? I'd love to be able to secure financing and offer 130K and help them end this, but I don't think they are at that point yet. FWIW, I found judgements going back to 2013 for the same amount on this property. They've held on for a while now.
I'd appreciate any advice on how to proceed from here.
Free eBook from BiggerPockets!
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.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
You must be a BiggerPockets member to post on the forums
Join the world's largest, most open Real Estate Investing Community online, 100% free forever!