Getting ready to make a deal

12 Replies

Ok BP friends My aunt was upside down on her home so she walked away from it. The bank reduce her mortgage but she doesn't want anything to do with the property. The property is sitting there empty. Me and my cousin were talking about it and thought about me taking a HELOC and updating the kitchen and 1 of the bathrooms covering up the swimming pool renting out 1 of the units and renting the basement to his younger brother. We would pay the mortgage the bank is asking for and split the rest 50/50.

I will be traveling down south to where she moved to this week and we will talk I want to go with the right knowledge and be able to help if I can..How can I approach this...I will be updating info as I get more

From my basic knowledge

The house is worth 270k

she owes 320k 

3br apt goes for $2200

mortgage right now $1700

Was there a principal reduction as part of the mortgage modification?

What are the restrictions on using it as a rental and or re-sale?

If there are rental restrictions attached to the modification, you could end up with the bank demanding 320K on a house that you just paid to update the kitchen.

Is the property a duplex?

Originally posted by @Jesse T. :

Was there a principal reduction as part of the mortgage modification?

I know there was a mortgage modification I don't have the details yet.

What are the restrictions on using it as a rental and or re-sale?

Her son who is living with her down south and depressed would move back and both of them will technically live in the downstairs apartment ...When she comes up every couple month to visit my grandmother and her other son and grandchildren ..

am I missing something here? 

house is worth 270, you have  to pay 320? 

Originally posted by @Alexander Felice :

house is worth 270, you have  to pay 320? 

Yes but it will be a buy hold and rent ...and wait for appreciation

Originally posted by @Will Bert :
Originally posted by @Alexander Felice:

house is worth 270, you have  to pay 320? 

Yes but it will be a buy hold and rent ...and wait for appreciation

ouch, I would bail fast if I had to wait for ~70k (if not more) in appreciation just to BREAK EVEN. You need a 25% in appreciation my friend. 

how close are the nearest hills? run there. 

Ok so I'm still a little confused or I just don't understand . If I'm cash flowing  $250 a month and the property is underwater all I'm paying for is the upgrades this deal is still not worth it ...I'm new to this so please bare with me 

So who is paying the 320k that she owes if you're only paying for the reno?

Originally posted by @Will Bert :

Ok so I'm still a little confused or I just don't understand . If I'm cash flowing  $250 a month and the property is underwater all I'm paying for is the upgrades this deal is still not worth it ...I'm new to this so please bare with me 

 It sounds like you are potentially starting with negative equity of 50K.  Even if your aunt go a deal of principal reduction on the mortgage, it may not apply unless she is an owner-occupant.  You need to 100% clear that your obligation for the mortgage would only be the value of the property.  The is no way to make nearly -20% equity a good deal for you.

Even with that the cash flow looks marginal at best.  I think it is most likely best to move on and find another investment.

Originally posted by @George Sass :

So who is paying the 320k that she owes if you're only paying for the reno?

 The tenant..she will stay in the downstairs apartment and rent out the 3br for $2200.00..

my aunt would pay $500 a month which would cover utilities 

I would be responsible for upkeep..

Originally posted by @Jesse T. :

Even with that the cash flow looks marginal at best.  I think it is most likely best to move on and find another investment.

Can you please explain.

Originally posted by @Will Bert :
Originally posted by @Jesse T.:

Even with that the cash flow looks marginal at best.  I think it is most likely best to move on and find another investment.

Can you please explain.

What everyone is trying to say is that it is not a good investment when you are starting out with negative equity. Not only are you 50k in the negative, you want to take a HELOC which will put you even deeper in the whole.


It might look like a good deal because of the postiive cash flow, but even that is risky.   What happens if the tentant leaves in the middle of the night, and you the rental unit sits empty for a couple of months?  What happens if you need to replace the water heater, AC, or both?

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