Buying houses that are underwater
I've got leads on a couple of houses that need a fair amount of rehab. The problem that I have is that they have no potential profit, as they are, because of $ owed on them. One is behind on a few payments and the other is current. Any ideas on ways to navigate these or should I let them go? Thanks in advance. Chris
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You have to be sure if a property is truly under water. Just because the owner is under water does not mean the property is under water. The property being under water means the property's current and potential value are less than what is owed of them, including their income generating potential.
Being behind a few payments only means the owner's finances are under water.
What can be done to counter an under water situation?
You might consider adding square footage. This would both increase the market value of the house and it's potential for income generation.
The whole subject of foreclosure involves people's finances being under water but not necessarily the property being under water. However like in buying any foreclosed property you would need to consider your cost to purchase plus your holding costs. There are the risks of effectiving a timely and profitable sale and if you have plans to hold the property as a rental unit there is the time, the effort, the cost of marketing, and the risk of successfully finding and leasing to a trust worthy client that with both take good care of your property and always, always,always pay their rent on time.
However, let us say that a property truly is under water. As mentioned you can work to effect a short sale with you preferably being the buyer.
A short sale is when a mortgage holder agrees to have a house sold for less than what it is owed and does require the approval of the mortgage holder.
If a house has more than one existing mortgages, a second or a third for example then those mortgage holders can be or can be caused to be motivated to discount their mortgages or in some cases those mortgages can be entirely illiminated.
However, in my opinion those kinds of deals are better left to more experienced investors with a greater wherewithal but if you want to get your feet wet you can consider joining forces with someone more experienced because as they say,
"10% or something is better than 100% of nothing".