Someone contacted me wanting to sell their house

Buying & Selling Real Estate
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Someone contacted me wanting to sell their house

Amie D.
SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes

Someone I knew in high school contacted me recently as she is desperate to sell her house, to the point she may just foreclose to be done with it. She asked me if I would or knew anyone who would would be willing to just buy it to take it off her hands. She's got an ex and their Mom renting it now long distance but they are not paying the full amount of the mortgage and they may move out at any time, and she already can't afford to pay it as it is. She is current on her payments so far, but really wants to get rid of it, doesn't want to be a landlord.

The house is in a decent area, but backs to a trailer park.

However, what she owes on the mortgage is just over by 5-10K what the house's market value is right now (didn't do an in-depth analysis, just from what I could find from comparable sales online), so I don't see any real investment opportunity here?

Houses in this region are still sitting on the market for a long time though and she doesn't think she would be able to afford that esp since the current renters are moving out at any time. I'm thinking I should advise her to just sell at a small loss or consult the bank about a short sale?


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  • Rob Powell
    Real Estate Investor · Oklahoma City, OK · Member since 2012 · 81 posts · 20 votes
    13y

    I am no expert but here is my two cents.

    Since she just wants out ,I would research what rent rate the market there will bear. If it is sufficiently above the mortgage ( at least $300/mo positive cash flow). I would maybe suggest that I take over her payment for her on a subject 2 scenario.

    Since she is current on the mortgage this may provide you a no money down deal.

    Just something to think about. I am sure there are others on BP with more experience and advice on this topic who will correct me if I am wrong.

    Good Luck!

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  • Larry Roberts
    White House, TN · Member since 2013 · 47 posts · 5 votes
    13y

    Lease/Option purchase. She could get a down payment that may help her out and get lease payments that will pay the mortgage and the tenants will act like owners because they are "buying"

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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    @Rob Powell, I really like this idea, esp with no money down, and I know she would do it. However getting rent at $300 above the mortgage would probably be a stretch. That would put the rent at $1500 a month, whereas market for selling it right now on a rough guesstimate would be 120-130K. This would put the rent (very roughly) at 1200/1300 per month. That being said also, the house backs to the trailer park and I don't know that the comparably sold houses do, so it may sell/rent for less due to that. I need more research obviously, she just came to me with this today after seeing pics of my last rental that I posted on Facebook, but this is my rough estimation.

    I am also not sure about doing a subject to sale in which the current mortgage is already more than what is owed on the house? She said she owes "well above 130K" on it now, according to records she bought it in October of 2011 for 141K. She also says "my mortgage is terrible I have to pay $1200 a month" so I don't know if that means her interest rate is also high because credit or other issues (no idea if hers is good or bad). It seems like the payment is high (unless she got a 15 year mortgage?) as property taxes in IN are not that high.

    @Larry Roberts , I could suggest that but I really don't think she wants to be any sort of landlord at all. She now lives in LA and the house is back in Indiana. She has no experience in owning property and at this point wants nothing to do with the whole thing anymore.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    13y

    @Amie D. - it looks like you just took 1% of selling market value and used that to tell us what you think the fair market rent (FMR) would be. You really need to look at what other similar units nearby to that unit are renting at to determine FMR; FMR could be higher or lower than 1% of selling value.

    Here's the BP resource for FMR:

    http://www.biggerpockets.com/rei/fair-market-rent/

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  • Derek W.
    Investor · Kern county Riverside County, CA · Member since 2008 · 494 posts · 261 votes
    13y

    For me it would be a interesting discussion of where you believe the market is going in your area. In my area I am buying subject-to deals like @Edward Powell mentioned of houses that might be slightly upside down right now, but the rent can cover the mortgage because we are appreciating in value and have been form the last year or so. I am willing to gamble in my market that houses will be worth more in the future than they are right now (purely speculator investing!). Do some market research about where housing prices are trending in your area. Do you guys boom and bust, or stay pretty flat? In California, we go way up, crash back down and repeat. That leaves room for some speculation purchases. Plus, I know that rent trends modestly up decade over decade and if I can lock in someone else's low interest mortgage I will have some plays in the future.

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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    @Steve Babiak, yes I did use that formula, which is why I said it's a very rough estimate. But I did some checking a bit ago and it looks like that price and range is pretty accurate for that neighborhood. The other thing that would need to be factored in is there is an HOA in that neighborhood, I don't know what the fees are. House built in 2008.

    @Derek W. , yeah I know, I thought of that too, but though I expect the area to improve - somewhat - it wasn't doing great before the recession hit and so I don't expect things to exactly skyrocket as in other parts of the country. If this property were in Seattle... Denver... Phoenix... I would have said yes already. The area is in a better neighborhood and school district, but overall is located in a mid-sized town in Indiana, market nothing like CA, where I bought low and sold high before (my first house actually). I don't live here full time, I am just back helping out my Mom for now and my friend from high school and I both grew up here, so I'm not as familiar, but have looked at buying here in the past because houses are so inexpensive, so have been tracking things on and off.

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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    I'm thinking that the best route for her would be to sell at a slight loss to what she owes on the mortgage or do a short sale. The other reason I think this may not be the best investment for myself is there is still a lot of inventory around here that I could pick up for less.

    However, buying it for no money down as @Rob Powell referred to and being able to rent it right away is definitely appealing. I just would want to see the numbers work, and right now it doesn't look like they would?

    I'm going to call some property managers tomorrow and an agent I know to confirm some of the #'s I was seeing yesterday for rents and property values.

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  • David Weiss
    Investor · Dallas-Ft.Worth, TX · Member since 2013 · 74 posts · 18 votes
    13y

    Selling at a loss is of course always an option.

    She could also go for a short sale. That will damage her credit and Fannie Mae guidelines do not permit her to buy another house for 2 years after a short sale if she has any 60+ day late payments on her record. That is possibly relevant because she's current and most lenders won't short sale on a loan that's current, so she may need to stop paying in order to get a short sale. Of course, if she already has a home and doesn't plan to move in the next two years, this may be a non-factor.

    If I were her, I would sell it on the open market while offering Owner Financing (via a Wraparound Mortgage). Offering OF will allow her to charge a bit more than the market would normally bear so she should be able to get her mortgage payments handled this way. She could charge the same down payment she had to pay, which she would be able to pocket. She would be free from landlord responsibilities and wouldn't take a credit hit.

    Such an arrangement does carry some risk. If her buyer stopped paying, she would have to foreclose on the buyer while making house payments on the property. She'd then have to resell the house doing OF again. (There is a significant silver lining to this, however: if that happens and if she can afford to carry the house during the foreclosure and vacancy, she gets to sell the same house twice, getting a second down payment and, best of all, after the original note is paid off, she gets to pocket 100% of the monthly payments until the Wrap note is paid off.)

    Because there is a risk of needing to carry the house for several months if her buyer becomes unable to make payments, she would be well-advised to stick the buyer's down payment in the bank and leave it there as an emergency house payment fund until the original note is paid off.

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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    @David Weiss, I don't think buying another house in two years will be an issue for her. She doesn't ever want to buy one again after this episode. Also now she lives in LA, and whatever job she has doesn't pay much, so even affording one out there would be an issue anyway.

    I think her money is very tight right now. Her total payment is $1200 a month and her ex- and ex's Mom are paying $800 a month and she said she's having troubles paying it even with them living there at that rate. So if they move out - she can't pay is what she is saying. I think the OF option you presented is great for you or I, makes sense, but I don't think she would be willing to take the risk on it. The other factor is she is done with that house period, owner financing would mean she still would have something to do with it long term, which she really isn't willing to do I don't think. If she is willing to foreclose just to get rid of it... that's pretty extreme.

    Probably what she should do then is sell at a loss... that would put her at selling at market right now, unless under market, but would sell faster, yet I don't know how much she could afford to lose on the mortgage since her money is so tight. If she can't sell it that way, I guess she would have to short sale. She would also have evidence to the bank that the house has not sold in x amount of time at current market rates, which are under what she owes.

    The current occupants have said they are moving very soon, which is why she is panicking. It was an informal agreement- only her name is on the deed, but she used to live there with them and they split the total payment - so they don't even have to give 30 day's notice and there's no management in place to handle things if they move or find new tenants, not that she wants to be a landlord anyway.

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  • David Weiss
    Investor · Dallas-Ft.Worth, TX · Member since 2013 · 74 posts · 18 votes
    13y

    Understood about the issues with a Wrap. Me, I'd prefer a risk of future costs than a certainty of a $10k hit now. Especially since I might be in a better financial position in the future. Of course different people have different considerations, but I would mention the idea to your friend and let her decide. If I was struggling with a low-paying job and I had a friend who had a strategy for saving me a $10k hit, I'd be pretty upset if they didn't mention it so that I could make the decision for myself. You may well be right about your friend's reaction, but....

    This is my perspective. Your mileage may vary. ;)

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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    Yeah I'll suggest all of these things to her (except me taking it over subject to, unless the numbers work out).

    I have more detailed information. She actually pays $1090 a month, that includes everything, on a 30-year, not including the HOA, which is is $150/year. It appears she did not buy the house in 2011 (I did not get that information from her, it was from zillow, so maybe she refinanced or ? ), she bought it new in 2007 for 141K. So yeah, also seems accurate that values have dropped since she bought it in 2007.

    So renting it I don't think would get her anywhere anyway even as a consideration, by the time she paid 10% property management, 1 month's leasing fee plus standard maintenance costs incurred as part of maintaining a rental home, she wouldn't be better off than she is with the current occupants living there, which she says she can't afford. Plus I noticed she has a homestead exemption on the house still, if she officially rents it and that falls off then property taxes would also be based on a value about 1/3 higher than now.

    A house recently rented that is located nearby in the same subdivision, same beds/baths, but is almost 300 sq ft larger (hers is 1291) and backs to greenspace rather than a trailer park for $1300.

    These numbers also don't work for me taking it over subject to.

    So pending on how much she can afford to lose or risk, I'll let her know what's been discussed here after I firm up some #'s with a few calls tomorrow.

    Thanks!

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  • Drake Hatcher
    Cleveland, OH · Member since 2013 · 7 posts · 0 votes
    13y
    Preferably you want buyers 1st b4 acquiring property & you want neighborhoods trending up 5-10% for lease opts You get potential buyer in prop for 2-3yrs In which the build payment history, then can qualify for a refi- Some of the best strategies for top of mkt properties is lease opts/rent opts You get front, middle & end income. You can get no money down, owner financing or carry over deals You get higher that mkt rents as there buying not just renting and you get up front option payment You get middle income w/ lease payments You then get backend income from selling @ top of mkt If you don't want deal you can get it under contract w/ seller & wholesale to end buyer that looking for lease opt deals & an assignment fee
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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    For a lease with option to buy, you would still need a property manager if you were out of state, correct?

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  • Marian Smith
    Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    13y

    I'm working on a property that was a wrap round mortgage that went bad and ended up in foreclosure. Wrap around is similar to a lease purchase in that the original owner still has a mortgage on the property. This house was disgusting!!! After only 2-3 years. In a nice neighborhood, too. So I recommend your friend short sale if she can't afford to bring money to the table. And she may need to hurry to short sell and not be taxed on any forgiven mortgage debt because that is ending.

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  • Amie D.
    OP
    SFR Investor · South Bend, IN · Member since 2013 · 342 posts · 56 votes
    13y

    She wants to do something ASAP as the occupants are moving out. I have heard of other lease purchases going similarly bad. I think she just wants done with it. I was possibly interested in it until I found out the numbers.

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  • Sidney_Bruno Phillips
    Englewood, FL · Member since 2012 · 3 posts · 0 votes
    12y

    Hi Amie D::

    This is Sid; I have buyers everywhere;

    maybe you could send me the details

    on the property for me to assist in 

    finding a Buyer

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