I have a buddy who bought a duplex in Chicago about 1 year ago using FHA loan, he has owes $58,000 but it's worth $160,000. He recently lost his job and the bank won't allow him to refinance and pull out any equity. Is there a way that we can work together allowing me to assume ownership and pull the equity out? I Have a fulltime job and I'm a Licensed real estate agent. Please Help
How is he going to repay the loan?
He could sell it to you subject to the existing mortgage. Then you could refi at a higher value. Meanwhile, you could rent the place to him. That still begs the question of how he would pay his rent.
Such deals are dangerous for the investor, too. Especially if there's a buyback clause. These can be viewed as a loan rather than a sale and leaseback.
He could sell the place. That would generate a bunch of cash. Perhaps he could them pick up the pieces and find a new living situation.
Jon Holdman, Flying Phoenix LLC
@Charles Wheeler you need to get on title and refi the loan conventional . That's the only way I see it since it's FHA
Lets consider the sale and refi. If @Charles Wheeler just buys it, for whatever price, he will have to put 20% down. The friend would get the difference between the sale and the payoff.
Or, do the subject to and then refi. Not sure this can be done right away, may need some seasoning. Then you refi at 80% (at most) of the $160K or $128K. That pays off the existing loan, leaving $70K, less costs. Does Charles just hand this over to the friend?
Now Charles has a P&I payment of about $690. Even with self management, rent needs to be $1075 to be break even. Can the friend afford that? What about the trapped equity of about $32K?
If you have cash, Charles, you could just make a loan to the friend and secure it with a second against the property.
Jon Holdman, Flying Phoenix LLC
@Jon Holdman I love the subject to strategy. Im thinking taking over the property subject to, then get a qualified renter in the bottom unit refinance at 80% pay off existing mortgage give my friend $35,000 become outright owner. Would that work?
Well, it wouldn't work for me if I was the friend!
You say it's worth 160k.. if it could indeed sell for around this then your friend could clear closer to 90k from just selling it on the open market.
What is the incentive to sell to you? And what is your incentive? It seems to me that your involvement (as you are describing it) would simply minimize his profit at a time of difficulty. I think a real friend would help him find a kick-*** realtor who could help him get top dollar for the property.
Jean Bolger, 33 Zen Lane | http://www.solidrealestateadvice.com
I agree with @Jon Holdman : this deal is dangerous for the investor as this can be viewed as an investor taking advantage of a homeowner in foreclosure. Also, you cannot buy a house subject to - here in IL - if the house is in foreclosure.
Just sell it in the open market as @Jean Bolger said. You can use the techniques I used when selling a million dollar home to sell that house really quickly. Here's the link:
Now, if his intent is NOT to sell the house, he can talk to a foreclosure defense attorney so he can get his foreclosure delayed long enough for him to find a job and then do a loan modification. You will not make any profit in this situation but...if he is really your friend, your profit is 'goodwill'...
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