I'm new to the investing world and am trying to get creative with a current deal that I am working. In short the house is weeks away from foreclosure, they owe full asking and cannot accept anything lower than that. I would like to get this house under contract and BRRRR all of my money back out of it because I see huge potential in the ARV. I would like to structure a deal with the seller to get the attorney fees paid, loan fees paid and work out a payment plan with them for the next 5 years using a seller finance model. Does anyone have any experience structuring a deal of this sort and could you help a newbie out? Or maybe this model isn't my best option? Any advice would be greatly appreciated!
You can't seller finance a foreclosure. Seller financing requires that the property is actually sold to you with title and the owner is holding the note. If you buy with them still holding a mortgage, that's a Subject To and subject to the previous owner not paying their mortgage and/or the bank calling the loan due - with a change in title there is nothing behind the mortgage anymore.
There are some occasions that a property going to foreclosure has some equity, but most owe more than what the home is worth. BRRRR assumes you're buying at a deep discount, not over paying.
Hey @Jeffrey Bresch and welcome to the wonderful world of BiggerPockets!
Yes, this is a common preforeclosure scenario and we've structured and closed a ton of these. However, it's not at all clear whether you've even got an actual deal here or not. More info is needed.
First, in which state is the property physically located?
Then, we need to talk specific numbers, for starters:
- Mortgage balance
- Total amount needed to cure the default
- Total repairs needed to make the property rent-ready
- Monthly mortgage payment (PITI)
- Fair market rent
Lastly, I don't understand your comments about a payment plan to the sellers: They have ZERO equity, if "they owe full asking." They get nothing. They're in this to save their credit.
It's the bank you have to contend with, and Subject-To might be my first thought, if I knew the details requested above.
What say you?
Thank you guys for the replies!
@Mitch Messer - The property is actually located on the beautiful island of Guam. An American territory if you're unfamiliar.
- The current mortgage balance is ~235,000
- Im not 100% on how much is exactly needed to clear the default but I believe it is in the 10,000 range
- Around 15,000 is what it would take to get the property rent/ inspection ready
- The monthly mortgage payment is ~1,500 obviously after repair and refinancing at the ARV
- Fair market rent is 2,205
- ARV conservatively is 295,000
My plan was to structure some sort of payment plan that rewards both parties. Its beneficial for both sides to allow me to get this house under contract. I would like to do so without financing it off the bat because like I mentioned above ideally this would be a BRRRR project. Knowing this information now what would be my best option moving forward would you say? Also, all numbers listed above are conservative. I believe not only would the house rent for more, but appraise for more as well. Thanks for any advice you can give!
@Jeffrey Bresch The monthly mortgage payments I was referring to are those on the existing (foreclosing) mortgage.
Since you don't have much time, direct PM might be faster. Connect with me here on BP if you'd like to discuss!