A Friend in need, can I help and make a buck or two ?

Question

HI their, and let me say first,  Im new and most of my "Post reading " has been on Wholesailing.

This just came to my attention last night.

Long story short.

My friend was selling homes for an upscale addition ( no RE lic. just the person their at the front of the addition in the model home, did great for the first 9 MO. sold a lot of homes, made great money , had the builders build their home ,,at a good price with lots of extras.

Now moved in just a few mo. ago , now has lost that job , for reasons that ,, well im not shure,,Friend was selling homes faster than anyone , and the builders were way behind, and so were the checks to her, thay still owe her money,, so go figure?

anyway bottem line is, thay are planning on just letting the house go into foreclosure becouse thay dont think thay can sell it and theirs no way to make the payments on what thay make now, and with their credit thay have nothing to lose in their minds.

MY QUESTION IS, ( and you call that the short story ?  lol)

ON a New home, no Equity to speak of, and in this market. what would you offer on a short sale,? how much money does the lender risk to lose if when the home owner finally is kicked out and thay are not that nice at removing their items ?

Verses say me or someone making an offer, and knowing that their will be no damages to fix ?

Like i said, i know nothing *( ya think !!)

Jon Holdman · Answer

Work backwards.  What's the property worth to you?  All this back story is largely irrelevant.   What's your plan for the property?  You say its in good condition and needs no work.  That makes any sort of fix-and-flip more difficult, since there's nothing to fix to help generate a discount when you buy.  You mentioned selling houses in "an upscale addition".  Is this an upscale house?  Pretty tough to make an upscale house into a profitable rental.

So, what's the real value of the house?  If you listed it in the MLS for $1, or even $1000, you would have a signed contract by the end of the day.  You say there's little equity, which tells me you think the value is roughly equal to what they owe.  (So much for "at a good price with lots of extras".  Unless they've done a refi or HELOC, if it was really a good price they would have some equity.)  If you put it on the market at that price, would it sell?  What price would it take in order to sell quickly, say in 30 days.  We've already established such a price does exist, you have to figure out what it is.

Look at recent sales (< 90 days), houses under contract, and current listings.  Go look at the other houses that are for sale.  How does this compare?

If you're going to acquire it, then turn around and resell it, how can you generate a higher price than just having your friend list it?  When houses are in poor condition, many buyers just pass them by.  So, you can get a discount.  This house sounds like its ready for a retail buyer.  So, the bank's not going to discount much. You need a pretty substantial discount off that true value in order to make this work as an investment. Since you want to wholesale it to another investor, you need that much more discount so both you and the end investor can make a buck.

Not quite seeing a deal here.  But, figure out that true value, figure out what sprucing up is needed, subtract off what your buyers want for a discount (typically 30%, but some may want less), subtract off your cut, subtract off a bit more to give you some negotiating room, and make that offer to the bank.  If they won't take it, there's no deal.

Jon

Mark Hawthorne · Answer

Thanks Guys, That is some good news about the tax not having to be repaid back!

still wondering about
 
On a New home, no Equity to speak of, and in this market. what would you offer on a short sale,? how much money does the lender risk to lose if when the home owner finally is kicked out and thay are not that nice at removing their items ?

Verses say me or someone making an offer, and knowing that their will be no damages to fix ?

Like i said, i know nothing *( ya think !!)

Thanks - Mark

Jon Holdman · Answer

There has been a new law recently passed that does away with this "phantom tax", at least for some people.  Its called "Mortgage Debt Forgiveness Act of 2007".  Even before that, there was a way to prove to the IRS that you were insolvent and avoid this tax.

Jon

Vince Szabo · Answer

They DO have something to lose. As I hear the banks now try to recoup their losess on short sales, by issuing a  IRS  ( yes IRS!) form 1099 to the barrower, on which they state that the unpaid/loss portion of the mortgage is considered an INCOME to the homeowner, who has to PAY TAXES on it.
Therefore you might be able to buy the property for pennies; let's say the mortgage was $300,000 and you were able to buy it for $100,000. The $200,000 is now considered income to your seller, reported to the IRS, who is now liable for taxes on it.
This not to scare you, but you must make sure that the lender won't do this before you try to help your friend out.
Also welcome clearification on this from experts and insiders.

Mark Hawthorne · Answer

just wanted to add , this is in Oklahoma city.