Lose $3,000 or is there an option?

9 Replies

I'd really like to seek the guidance of some more veteran BP'ers on a situation my wife and I are in.

Last year, we moved into a home under a purchase and sale agreement with a significant down payment/earnest money that was supposed to be used for the purchase of the home when financing worked out.  We were originally going to get the mortgage to close Early to mid-Feb of this year after we could demonstrate a year of rental income on another property we own for a conventional loan.

Since having signed on this home, unforeseen circumstances have really pulled us toward moving to Missouri, which is thousands of miles away.  Having limited cash as it is, I'd hate to walk away from the down payment we made.

Options as I see them:

1) Walk away, let owner keep the down payment, and they will again have to assume the risk of putting the home back on the market or finding a renter.  Not only do I deplore this for what it does to us financially, but I would like a better scenario for the current owner as we try to operate in a manner where our transactions of any sort are mutually beneficial.

2) Test the market with some potential buyers who own neighboring buildings around me that they rent out to tenants.  This home is zoned multi-family already.  We were interested in buying it because we have adopted many children and need the space.  I'm going to reach out to these folks this week, but would have a stronger negotiating mind if I had a little guidance. This is my preferred option. See below

3) Buy the home, and either try to sell it through a realtor or rent it out.  This is not ideal from a standpoint of having to trust folks to help us turn it around from thousands of miles away and I'm unsure if I could get financing for the home we need in Missouri if I rent out this home + another home we've been renting out.

If I choose number 2, I'd have to figure out a few things

1) Whether I need to wait for conventional financing as hard money might be better if I intend to flip it.

2) I've never sold a home, so I would need assistance on knowing my costs and doing the math for the above to work out.

3) Can I even pursue potential buyers without having the title in my name?  I have a can-do attitude sometimes that gets me into trouble

I apologize in advance if this issue is answered elsewhere, but I atleast wanted to get the ball rolling so time can be an ally instead of a foe in this

I'm sure there are many questions I should be answering but the general gist is I have atleast 2 months, possible as many as 5, and I want to take advantage of that and walk with wisdom and hopefully have a situation where the current owner, us, and hopefully a new buyer all make out positively.

Thanks in advance to all who take the time to read or provide feedback

@Tony Ferrero   The first thing I would do is ask a realtor for a broker's price opinion.  That will help you figure out if you have any equity at all in the property.

Thank you for your reply.  I'll get to work on this today

Question 1: is the $3,000 the "significant" figure here? This may sound tough, but $3k is actually pretty insignificant when talking about real estate. It might be significant to you if your annual income is $3k, but it's hardly anything when talking about houses/apartments. 

Question 2: is there a reason you can't move Missouri to you? Ailing family members can stay with you or close by you. Virtually anything else can be done remotely. How does working figure into all of this - if you already have work, and $3k is a lot of money for you, does moving even make financial sense?

Without knowing much about you, your entire financial situation sounds tenuous ($3k being significant; relocating without [I assume] work reasons; adopting a lot of kids). Leaving this cash behind might be the least of your worries. As for the property owners, I doubt they will care that much one way or the other; letting someone buy a house like that already assumes a reasonably high rate of default. They just collected a little more money so if/when you defaulted, they would hopefully have something for their trouble. 

@Tony Ferrero Eat the $3K and walk away, run away, things have changed and there are way too many questions on your end.  I'm not saying that you couldn't flip it, or rent it, or refinance it, or any of those other options.  But they all have an element of cost and time.  I would guess you'll blow through the equivalent of $3K pretty quickly while you figure out what to do, deal with hiccups along the way, etc.  Eat the $3K and head on out to Missouri.

Originally posted by @JD Martin :

Question 1: is the $3,000 the "significant" figure here? This may sound tough, but $3k is actually pretty insignificant when talking about real estate. It might be significant to you if your annual income is $3k, but it's hardly anything when talking about houses/apartments. 

  • We are not in bad shape financially, but walking away from $3,000 that I could use for a new home purchase/money to invest where we move to is significant enough to drive this post. I would like to change that but everyone starts somewhere. I do understand the point you make though. Also, I'm driven to finding a way to not cause the current owner to have to re-list the home if I can.

Question 2: is there a reason you can't move Missouri to you? Ailing family members can stay with you or close by you. Virtually anything else can be done remotely. How does working figure into all of this - if you already have work, and $3k is a lot of money for you, does moving even make financial sense?

  • At this point, the move is unavoidable for various reasons that I'll spare to keep the post concise.  I've vetted out all alternatives.  Work is transferable and a non-issue.  After our tax return and with other savings, the move will be costly but won't need to be financed.  We try to live on cash a-la Dave Ramsey's mindset where we can. 

Without knowing much about you, your entire financial situation sounds tenuous ($3k being significant; relocating without [I assume] work reasons; adopting a lot of kids). Leaving this cash behind might be the least of your worries. As for the property owners, I doubt they will care that much one way or the other; letting someone buy a house like that already assumes a reasonably high rate of default. They just collected a little more money so if/when you defaulted, they would hopefully have something for their trouble.

  • Points taken.  Perhaps the matter of conscience that I have are what are keeping me in the tenuous position from an investor's standpoint.
Originally posted by @Tony Ferrero :
Originally posted by @JD Martin:

Question 1: is the $3,000 the "significant" figure here? This may sound tough, but $3k is actually pretty insignificant when talking about real estate. It might be significant to you if your annual income is $3k, but it's hardly anything when talking about houses/apartments. 

  • We are not in bad shape financially, but walking away from $3,000 that I could use for a new home purchase/money to invest where we move to is significant enough to drive this post. I would like to change that but everyone starts somewhere. I do understand the point you make though. Also, I'm driven to finding a way to not cause the current owner to have to re-list the home if I can.

Question 2: is there a reason you can't move Missouri to you? Ailing family members can stay with you or close by you. Virtually anything else can be done remotely. How does working figure into all of this - if you already have work, and $3k is a lot of money for you, does moving even make financial sense?

  • At this point, the move is unavoidable for various reasons that I'll spare to keep the post concise.  I've vetted out all alternatives.  Work is transferable and a non-issue.  After our tax return and with other savings, the move will be costly but won't need to be financed.  We try to live on cash a-la Dave Ramsey's mindset where we can. 

Without knowing much about you, your entire financial situation sounds tenuous ($3k being significant; relocating without [I assume] work reasons; adopting a lot of kids). Leaving this cash behind might be the least of your worries. As for the property owners, I doubt they will care that much one way or the other; letting someone buy a house like that already assumes a reasonably high rate of default. They just collected a little more money so if/when you defaulted, they would hopefully have something for their trouble.

  • Points taken.  Perhaps the matter of conscience that I have are what are keeping me in the tenuous position from an investor's standpoint.

 In that case, if you really have to go to Missouri, I would probably consider it lesson learned and move on. Be up front with the sellers, whether they understand or not. At the end of the day, no one will look out for your best interest better than you, and as @Andrew Johnson  mentions, you'll probably spend a lot more money than that trying to figure out how to recover $3k. 

The most important question there is what is the house under contract for and what is it actually worth.

Typically when an investor sells a house like that (rent to own thing), they are pricing the house near the top of the market. If so, I doubt the house increased enough in value in a year's time to leave you any room for profit.

So lets say the house is under contract for 100k and it was worth 100k last year. Maybe its worth 105k this year. If you were to buy it and then turnaround and sell it. Even if you could close in 30 days and sell it for 105k, you're still going to have to pay closing costs, attorney fees, etc, so that you may only end up getting 95k or maybe even less.

Why buy a house for 100k if you're only going to get 95k back? You'll end up losing 5k instead of just the 3k.

Ultimately, the lease option fee that you put down is exactly that - an option to buy. The fact that things changed so drastically and you are now needing to move far away is exactly the reason that option works well for both of you.

Just imagine if you would have actually bought that house normally last year for 100k and now you're having to move and would have to sell it. You'd be losing 10k or more.  Instead, you are free to back out of the purchase now and do it with only a 3k loss - your option fee.

Based on how small the option fee was and how short a period of time you've been there, I just don't see how there's any real value in buying that house and trying to flip it. Even as a rental, its typically pretty tough to get any cash flow on a house if you're paying retail like that.

I like where your head is at for Option #2. Sounds like the best way to go and you operate with integrity. Certainly get a Broker Price Opinion on the property value but also ask RE agents if they know or work with investors who would be interested in the property.

Another option (albeit more complicated) is this: Can you qualify for the conventional loan? If so, you could lease-option the property to a tenant-buyer, become the bank and seller-finance (this opens the door to more buyers than those that have to qualify for bank lending in order to buy the property from you outright). 

Ask the new tenant-buyer for a $5,000 Non-Refundable Option Deposit and a monthly payment that will at least cover your monthly. I would also put in the lease that the tenant-buyer is responsible for paying homeowner's insurance, property taxes and all maintenance.

As to your question about financing with regards to rental payments, lenders will count 75% of monthly rental payments as income. Lender guidelines vary, but count on having at least 12-months of rental history in order to qualify that rental income. 24-months is preferred by most lenders.

Walk away and move on with your life. Lesson learned.

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