I need some advice on my situation regarding a short sale!

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I need some advice on my situation regarding a short sale!

Marvin Eason
Real Estate Investor · Oceanside, CA · Member since 2008 · 38 posts · 0 votes

Ok, so I live in a house that the owner is doing a short sale, he was asking for 350k, and is now asking 325k. I am currently renting a room and will become the "landlord" of the home come 4/1.

The owner does not live there, it is I, my SO and our daughter, the landlord who stiffed him on all of our rent is being evicted and him and I struck a deal for me to stay, plus our other roommate.

Once she leaves we will have another roommate coming back that she originally kicked out (he did work around the house, installing a new wall to make the 4th bedroom she's staying in and then she kicked him out).

So once he moves back in, we will only have 1 room vacant. Ok, now to my question, I am trying to figure out how I can turn this into my first investment. I don't know really all that much about short sales, I've been reading this forum but the picture is still kinda hazy.

The plan in my head is to buy the house, but I am not sure if with a short sale I can get it at a discount to make it profitable? The owner has shown heightened interest to sale it to me, and he was giving examples of me putting in an offer, he mentioned 290k lol even though he's asking 325k, so he sounds motivated to me.

But I want to make the house a rental property, with me living downstairs and 3 roomates upstairs, can someone help me sort this out in my head, get me thinking down the right path?

:beer:

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  • Skylar Howard
    Real Estate Consultant · Siesta Key, FL · Member since 2008 · 421 posts · 50 votes
    18y

    Has the owner became 90 days late? If so, it is time to start talking to him about the idea of a SS. Explain to him that he has nothing to lose, except his credit if you don't help him. Check back. We will go to the next step after I hear your response.

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  • Daniel Gonzalez
    Realtor · Miami, FL · Member since 2008 · 48 posts · 4 votes
    18y

    You dont have to wait 90 days to perform a short sale especially in todays economy. They can be one day late and you can perform the process. Just like mercury mentioned, tell him he has everything to loose and nothing to gain if he doesnt agree to allow you to purchase his property and perform a short sale.

    If you perform a short sale and it goes through it will save his credit, he wont have a foreclosure tied to his name, you will pay any leins or back taxes on the property, etc...

    hope this helps!

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  • Skylar Howard
    Real Estate Consultant · Siesta Key, FL · Member since 2008 · 421 posts · 50 votes
    18y

    I have never gotten the banks to entertain a SS unless they are 90 days late. Please explain.

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  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2008 · 1k+ posts · 218 votes
    18y

    I have had some lenders do a SS prior to 90 days late, however this is by far the exception and not the norm.

    My concern on this topic is can you afford to qualify for a loan to buy the home without taking into consideration the rental income from your roomates?

    Typically unless the rent is coming from a completely separate unit, not just a room, but a unit, it can't be counted towards your income that you would put down to qualify for a loan.

    Might want to be sure you can get a loan before proceeding!

    Always know how to get out, before you jump in!

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  • Marvin Eason
    OP
    Real Estate Investor · Oceanside, CA · Member since 2008 · 38 posts · 0 votes
    18y
    Originally posted by "mercury":
    Has the owner became 90 days late? If so, it is time to start talking to him about the idea of a SS. Explain to him that he has nothing to lose, except his credit if you don't help him. Check back. We will go to the next step after I hear your response.

    I am not sure, but the owner said the house is up as a short sale.
    http://www.drodio.com/virginia-real-estate/alexandria/8019-imperial-st-alexandria-va-22309-fx6639972.php

    I just got off the phone with his realtor and she's starting the process for me on the house, I still feel lost in that I know what I am trying to do with the home, but I am not sure what the numbers need to be for this to be a rental property for me. :oops:

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  • Marvin Eason
    OP
    Real Estate Investor · Oceanside, CA · Member since 2008 · 38 posts · 0 votes
    18y
    Originally posted by "4rmgt":
    I have had some lenders do a SS prior to 90 days late, however this is by far the exception and not the norm.

    My concern on this topic is can you afford to qualify for a loan to buy the home without taking into consideration the rental income from your roomates?

    Typically unless the rent is coming from a completely separate unit, not just a room, but a unit, it can't be counted towards your income that you would put down to qualify for a loan.

    Might want to be sure you can get a loan before proceeding!

    Always know how to get out, before you jump in!

    Thats the step I am taking as we speak, I do know I have a VA loan because of my prior military service, so hopefully if all else fail that can help me get approved? Then with my SO income and my own we should be fine on the payments, but I still want to rent the upstairs out.

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  • Kathy Utiss
    St. Louis, MO · Member since 2008 · 61 posts · 5 votes
    18y

    Marvin,

    You need to check property records. If he started at $325,000 and mentioned $290,000. That's a difference of $35,000. Is that the bottom $$ county records show as being due? Then if so what is the number the bank is asking for? Another thing to be leary of is the realtor still needed? How long is the sellers contract in place with realtor for in the future. That's 6% you may not want to pay someone. Unless your sharing fees or seller is paying them. Cause this could make your discount less.

    If a BPO then final appraisal comes in at a valueof $325,000 with a purchase price of $290,000 your ltv would be 89%. Which is a discount. But then if you have repairs that need to be done I'd try to get them discounted. Depending on what he really owes the bank and the bpo.

    While I know your considering this for your own residence it's not a transaction I don't think most investors would purchase. As they like to buy in the 60 if your lucky 70% range which is $190k to $227,500. Which is alot less than $290k. Shoot if you could get it for the $227k then hopefully repairs are minimal u may purchase as an owner occupied. Then gain equity on the purchase. Not sure if this bank will negotiate or not. If they say no tell us who the bank is. Or do a search and maybe you'll find out if they do discount their notes. Instead of a short sale. Maybe it would be cheaper this way. Cause if they do and seller will negoitate and do a deed in lieu so u don't have to foreclose it'll save u some bucks as well possibly. However, to do this way you may need to bring in a HML for the purchase of the note then pay them back from the financing you're able to put in place for the purchase. Someone else could probably elaborate more.

    However, we have to determine if this is something they do or not.
    Also if this isn't an option and true value is $325k and you purchase you walk in with some equity. But you need to estimate the repairs cause you want to make a profit/equity if you can and u don't know if u don't ask.

    Like they said you need to find out what you qualify for credit wise. Do u know what your credit score is? do you know what your DTI or debt to income ratio is?
    This is figured based on outstanding debts in which someone could have a lien on such as a house, cc, vehicle or any business lines of credit. Your reg auto ins, food, utilities aren't figured in to your DTI.

    Usually what I've seen on FHa or the new loans some are doing the max dti is 42%- so say you make $100,000 yr and your expenses for dti (without house note)is $1,000 per month. Then they add the house note. Which will be say Pur price of 290,000 if you get at a 7% interest minimum 30 yr note your looking at a pymt of $1929 per month+ taxes ins in escrow. So the 1929+1000=2929x12=$35,148---which if you make $100k per yr with these expenses and the highest dti they'll allow is 42% your just under the threshold with $42,000 as the max they'd allow for a dti with this income. But if you have ins and such included may take it up to the 42 % allowed. If your income isn't this at this point they may take into consideration the extra income you'll have from renting the rooms which may be considered. Which means seller may have to show the accounting on the tenants in place. The more info u can give the better it may be.

    If you try to get them to discount the repairs needed to make habitable make sure u document the depreciated value of asset as is currently and cost of repairs with pictures the uglier made in pictures the better the discount.
    I don't mean to do damage to the property. But being in the business I've seen some real humdingers. I'm sure every investor has. But to come up with a purchase price take actual selling price minus repairs and labor costs. If u can. But these are all particulars u need to consider besides working everday. Or come up with a firm offer to bank and see what they say. But do your best not to overspend.

    You may also want to see if this is your 1st property and can go fha with down payment assistance of 3-5%. This may help as well with some of the downpayment costs. I know people have used the Nehemiah program before with success. If their still offering the help u may as well see if u can qualify to receive it. Just ask to be told yes or no. I'm just not sure of what their requiring for the credit scores right now to get the best interest rate and terms. U can find out easily though.

    As they've all said we're here if we can help.

    Best of Luck,

    Kathy

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  • Daniel Gonzalez
    Realtor · Miami, FL · Member since 2008 · 48 posts · 4 votes
    18y
    Originally posted by "4rmgt":
    I have had some lenders do a SS prior to 90 days late, however this is by far the exception and not the norm.

    My concern on this topic is can you afford to qualify for a loan to buy the home without taking into consideration the rental income from your roomates?

    Typically unless the rent is coming from a completely separate unit, not just a room, but a unit, it can't be counted towards your income that you would put down to qualify for a loan.

    Might want to be sure you can get a loan before proceeding!

    Always know how to get out, before you jump in!

    I wouldnt worry so much about qualifying for a loan. See if you can have a loan officer write you a letter saying you are qualified if possible, lline up a hard money lender, then have your buyer in place before you even close so you can do a simultaneous closing. Unless you plan on holding onto the property and using it as a rental. I wouldnt especially if you have to do repairs. Just line your buyers up so you can close and make nice profit!

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  • Kathy Utiss
    St. Louis, MO · Member since 2008 · 61 posts · 5 votes
    18y

    Marvin,
    I did some more checking. I can't see the property records for who lienholder is online. However, when I check title for when something was last recorded it was in 1990 at $165,000.

    However, checking tax records there for Fairfax county it shows this
    HATAMI ZAHIR 8019 IMPERIAL ST


    Sales History
    Date Amount Seller Buyer
    02/07/2007 $0 HATMI ENTERPRISES L L C HATAMI ZAHIR
    03/02/2006 $0 HATMI DAVID HATMI ENTERPRISES L L C
    12/27/2005 $411,900 BRADLEY ROY E JR HATMI DAVID
    06/22/1990 $165,000 BRADLEY ROY E JR

    Sales 3 of 4



    Date 12/27/2005
    Amount $411,900
    Seller BRADLEY ROY E JR
    Buyer HATMI DAVID
    Notes Duress (liquidation, forced sale, etc.)
    Deed Book and Page 18081-0199

    So this deal is actually discounted quite a bit from the bank if he purchased in 2005 for $411,900. Interesting enough the records show the value to be $424,700. While county records may be off with the economy maybe their right and its so slow in selling they've discounted this much. But I don't know they will discount this much. Even if the purchase price is $290k and actual market value today is the $424,000 per appraisal that's a 120k markdown. This house doesn't look like it needs work on outside. Maybe different up close or inside but I don't know. But this tax record is kinda wild.
    MAP #: 1011 05120005

    HATAMI ZAHIR 8019 IMPERIAL ST


    Values
    Current Land $250,000
    Current Building $174,700
    Current Assessed Total $424,700
    Tax Exempt NO
    Note

    Values History
    Tax Year Land Building Assessed Total Tax Exempt
    2008 $250,000 $174,700 $424,700 NO
    2007 $155,000 $291,090 $446,090 NO
    2006 $155,000 $273,860 $428,860 NO
    2005 $125,000 $198,060 $323,060 NO
    2004 $104,000 $162,345 $266,345 NO
    2003 $90,000 $134,855 $224,855 NO
    2002 $75,000 $106,335 $181,335 NO
    2001 $66,500 $98,350 $164,850 NO
    2000 $54,100 $98,350 $152,450 NO


    The number shown for 2005 shows value as $323,060 when he apparently purchased in dec 05 for $411k. Could records be off this much for value compared to what county shows ? Well I decided to pull comparable for houses that have sold as recent as 1/25/08. With about 300 sq ft more for $173k. So you need a BPO or appraisal before putting in any purchase price. Cause the sold prices vary quite a bit with the market the way its been. You in a city that has usually held value well. So it's new water as far as what price should be offered with the market were in.

    Here's the comparables--the house your looking at according to records is only 816 sq ft. The house doesn't look this small if u ask me but what do I know.


    Price Sold On Bd Ba Size $/sqft Dist. (mi)
    8100 Steadman St $369,000 12/28/07 4 2 1,100 $335 0.1
    8105 Keeler St $419,420 12/14/07 3 3 1,377 $304 0.21
    8141 Keeler St $380,000 12/07/07 3 2 1,360 $279 0.35
    8236 Frye Rd $500,000 02/01/08 4 3 1,662 $300 0.47
    8011 Ashboro Dr $307,937 11/19/07 4 1 960 $301 0.46
    8007 Martha Washington St $360,000 10/01/07 3 2 1,128 $319 0.74
    8106 Norwood Dr $415,000 11/14/07 3 1 1,533 $270 0.62
    8409 Highland Ln $415,000 12/28/07 4 2 1,794 $236 0.72
    8130 Keeler St $295,000 09/17/07 5 2 988 $298 0.43
    7819 Ashton St $265,500 12/04/07 2 1,046 $253 0.82
    8708 Lea Ln $450,000 11/29/07 3 2 1,293 $348 1.11
    3904 Quisenberry Dr $578,000 09/14/07 3 2 1,554 $371 1.18
    5627 Cornish Way $467,500 12/17/07 4 2 2,300 $203 1.36
    3602 Rolling Hills Ave $400,000 10/22/07 2 1,352 $295 1.19
    4300 Granada St $530,000 01/04/08 4 3 2,310 $229 1.1
    8712 Lukens Ln $430,000 12/13/07 1 1,014 $424 1.21
    3434 Ramsgate Ter $420,000 12/27/07 3 3 1,296 $324 1.58
    8709 Falkstone Ln $549,000 09/21/07 4 3 1,876 $292 1.15
    8704 Gateshead Rd $500,000 12/21/07 5 4 2,352 $212 1.17
    4206 Sonia Ct $605,000 10/16/07 4 3 2,420 $250 0.81
    7603 Kingsbury Rd $511,000 10/25/07 3 2,226 $229 1.35
    8321 Blowing Rock Rd $450,000 12/20/07 3 3 1,380 $326 1.88
    8402 Cherry Valley Ln $483,000 01/30/08 5 3 1,463 $330 1.74
    8730 Talbott Farm Dr $500,000 02/05/08 4 3 2,087 $239 1.26
    4335 Rolling Stone Way $463,000 10/04/07 3 2 1,752 $264 1.74
    3911 Gibbs St $500,000 10/02/07 4 2 1,654 $302 1.46
    7105 Green Spring Ln $540,000 12/28/07 4 2.5 2,469 $218 1.64
    5511 Butterworth Ct $525,000 01/17/08 5 3 1,766 $297 1.64
    7402 Fairchild Dr $415,000 11/27/07 2 1,120 $370 1.87
    5804 Sunderland Ct $530,000 09/26/07 4 3 1,620 $327 1.57
    3404 Little Hunting Creek Dr $400,000 11/29/07 3 1 1,375 $290 1.62
    8604 Cherry Valley Ln $487,000 01/23/08 5 2.5 1,654 $294 1.88
    8800 Black Alder Dr $665,000 12/18/07 6 4 2,550 $260 1.31
    8502 Cherry Valley Ln $515,000 02/11/08 4 3 1,658 $310 1.82
    3441 Little Hunting Creek Dr $417,000 11/29/07 2 1,262 $330 1.77
    7029 Polins Ct $460,000 01/25/08 3 3 2,022 $227 2.02
    7022 Polins Ct $427,250 10/31/07 3 2 1,328 $321 2.08
    8601 Wagon Wheel Rd $470,000 11/29/07 4 2.5 2,800 $167 1.8
    3118 Little Creek Ln $454,000 01/28/08 4 3 1,654 $274 2.02
    8919 Union Farm Rd $173,333 01/25/08 4 3 1,130 $153 1.55
    7013 Polins Ct $465,000 12/03/07 3 3 1,387 $335 2.1
    5820 Broadmoor St $538,200 10/19/07 4 3 1,632 $329 1.69
    4432 Flintstone Rd $459,900 10/02/07 4 2 1,839 $250 1.91
    9040 Buckner Rd $500,000 12/14/07 3 1,516 $329 1.77
    6840 Stoneybrooke Ln $375,000 11/21/07 4 3 1,360 $275 1.93
    6805 Lamp Post Ln $502,000 12/18/07 3 3 1,403 $357 2.16
    4021 Cool Brooke Way $588,500 11/27/07 3 4 1,697 $346 1.79
    5206 Cedar Rd $565,000 10/02/07 4 3 1,845 $306 1.5
    7519 Berwick Ct $435,000 02/01/08 5 3 2,648 $164 1.71
    7000 Dreams Way Ct $600,000 12/27/07 4 2.5 2,607 $230 1.79

    The one's I've highlighted in red are the one's I'd be checking to see what they look like outside. Is there the same ground amount? More Less...Just some large variations to come up to todays value. So pay a broker $50-$75 for a BPo. If the bank demands their own you'll know how close to being told the truth you are before you pay $300 and up for an appraisal.

    Best of luck again,

    Kathy

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  • Marvin Eason
    OP
    Real Estate Investor · Oceanside, CA · Member since 2008 · 38 posts · 0 votes
    18y

    Wow! Thanks Kathy for going that extra mile, that's a lot of information lol, I am still trying to digest everything you wrote. So I may have to reply several times lol, it's still too early in the morning.

    But the house doesn't need many repairs on the outside, on the inside I would say the house needs new steps, when you step on them they feel like they could give at any moment, the kitchen is nice, it has granite countertops, nice cabinets, appliances etc.

    The walls need painting and the ceiling upstairs could use work, and the bathrooms needs a plug and that thing you put in the wall to put your toliet paper roll on lol..

    The little roof on the back attached to the house needs repairing, but the house is bigger than 800+ sq ft. Again, you posted a lot of info, and I am trying to remember all that you wrote lol. His "agent" will be calling me back today, he told me 3 days ago to contact the lady I contacted, so that I could place an offer with her.

    Well I called her and barely got a word in, but she is checking my credit , etc etc and will let me know today, what I can and can't do. I know I shouldn't base everything off of having tenants in the home, but I've been in the home for a year and that entire year we had roommates.

    Great thing about this area and only being 10 mins from DC, lots of people would rather rent out a room while they are attending a school here (George Mason, Georgetown etc) or while they are working than rent an apartment that will cost them 1200 on average.

    Anyhow, I had to pause and do a few other things in between this message, so I will respond with more later. But I really do want to thank you Kathy and the others for your information, God I love this site!

    Kathy, how did you pull up all that information? Or where rather did you get gather it?

    Thanks,

    M

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  • Kathy Utiss
    St. Louis, MO · Member since 2008 · 61 posts · 5 votes
    18y

    Some of the information was from the tax assessor there in Fairfax county. The comparables I pulled from Zillow. While their values sometimes are off I don't think one could deny what amount something sold for recorded there.

    Please be sure to get the BPO. Is this realtor a loan officer as well? Some do both just keep your eyes open and driving forward.

    Good luck,

    Kathy

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  • Anitha McAllen
    Accountant · Member since 2008 · 2 posts · 0 votes
    18y

    Everything you need to know has been covered by dandkconsultant. Good info

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