Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
BL: Purchased HUD property Dec 2013 for $32k, rehab costs and expenses were$34k. thats 66k cash of my own money in the deal. The good thing is that I dont have any holding costs other than utilities and property taxes, but $66k is still alot of money for me. Listed property for sale at $94k and have reduced price $85k since its been on the market since March 2014. All the feedback was great but no offers. Received a cash offer for $65k last week so I asked for proof of funds. I figured, I'd take the loss and take it as a lessons learned. Last night got a phone call from the realtor telling me the buyer has $50k cash and wants the seller to carry back $15k....NO DEAL!
Very frustrated here. Lessons learned from this disaster is to never over rehab. Never buy a house on a busy street. Never buy a house without a garage. My strategy was to appeal to first time homebuyers and make it a "wow" house to distract it from being on a busy street. WRONG!!!...LOL!
Current Exit Strategy: Do a cash out refinance. Pull out equity and do a lease option agreement. I don't want to be a landlord but its looking as if my options are slim.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
11y
At this point you must completely set aside how much money and time you have invested in the deal. For buyers this is completely irrelevant. They're only going to buy your house if its a good deal vs. the competition. I've been there. I know its tough to list at house at a price that's going to be a loss. It just doesn't matter. That's water under the bridge. Price it right, get rid of it and move on.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
11y
If it were me, I'd do a cash out refi and rent it for a while.....but renting properties out are my business. Your next best option is to bite the bullet and sell it at a loss and move on and try to make it back on the next one. Call this a learning experience that came with a cost.
This is a very important lesson for newbies running comps, if it's on a major road make sure ALL of your comps are also on major roads because it has a huge impact on value. If you look at a house a block off that road the value isn't even going to be similar as most people just do not want to live on the major road. I have one rental on a major road and while it rents quickly, with just a sign in the yard due to the traffic, the tenants rarely stay more than a year, always due to concerns of living on that road. If I were to sell it I think it's worth about 33% less than similar homes a block or two away not on that road based on the comps I've pulled (but I knew that going into it and factored that into my price). I generally try to avoid busy streets.
Originally posted by @Belinda Reaves: I do have an agent. I did consider taking $50 and selling the house for $70k. Two issues I have with that is that I want to retain 100% interest in the property until it's sold. Second, After consulting with an attorney he advised against it. If the deal goes bad, I would have to foreclose and that could tie up the house for a year. I would only do a seller finance if I could recoup 100% of my initial investment up front of $65 and let the cards fall where they may.
In reference to this one I'd definitely reconsider. If you took $50k the buyer would have a ton of equity in the house with a really low LTV. If you filed foreclosure the buyer could easily sell the house for more than the ~$20k left on the note and even if the buyer didn't you'd recover all of your unpaid principal, interest, fees, court & attorney costs, etc at the foreclosure sale or when you take the property back.
Investor · Huntsville, AL · Member since 2014 · 105 posts · 34 votes
11y
Thanks everyone for the great advice!! The agent called last night and said the family is helping to raise the remaining $15k they need to fund the deal so we can close in two weeks. If they're not able to raise all the funding they need, after reading your suggestions, I will strongly consider taking the $50k and owner financing the remainder.
In reference to this one I'd definitely reconsider. If you took $50k the buyer would have a ton of equity in the house with a really low LTV. If you filed foreclosure the buyer could easily sell the house for more than the ~$20k left on the note and even if the buyer didn't you'd recover all of your unpaid principal, interest, fees, court & attorney costs, etc at the foreclosure sale or when you take the property back.
Patrick L. Good point! I never thought of it from that angle. Thanks.
Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
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Belinda Reaves
Double check with your attorney on a couple different ways to offer seller financing. If you transfer title then foreclosure is usually your recourse.
If you do a contract for deed or lease option agreement where title doesn't transfer until fully paid then you MAY be able to get the property back more quickly than by foreclosure.
I'd dig into this a bit more.
Real Estate Investor · Fort Pierce, FL · Member since 2014 · 132 posts · 57 votes
11y
If they do not end up buying, it might be worth it too just rent it out for a couple years, without doing any cash out refi on it. While you are renting you can being trying to sell for your max. And if you do not take loans out on the house, then you do not to worry about possibly losing the house due to extended vacancy, house trashed by bad tenants etc
Thanks everyone for the great advice!! The agent called last night and said the family is helping to raise the remaining $15k they need to fund the deal so we can close in two weeks. If they're not able to raise all the funding they need, after reading your suggestions, I will strongly consider taking the $50k and owner financing the remainder.
Late to this party. I'm sorry this didn't work out for you. If you are done with real estate this might be your best option. If not, think about lease option, as you've stated, especially if you think the house will appraise for more than the $65K you can get for it.
Consider this scenario. You offer it lease option at a decent price, maybe the $75K you have it listed for. Tout the fact the this is $10K less than assessed value, if that is the case. Request $5K option payment, applied at deposit on purchase. Refi out for 70% LTV (80% if you are holding it in your name). It appraises for $75K. That's $52.5K, minus $2.5K refi closing costs is $50K in your pocket. Plus you've got the $5K from the buyer.
You should be able to rent it out at a 10% premium over most rentals since it is gorgeously remodeled. Maybe you are cash flowing at $300/mo, building another $150/mo in equity. You've got a tenant in there who has skin in the game. You have $10K into the property, which needs nothing for years (hopefully), and you will make $450 * 12 = $5K on your $11K investment over the next year. Landlording this one will be a breeze.
Now take your $55K and buy right and make $10K on the next one.
Real Estate Investor · Navarre, FL · Member since 2013 · 38 posts · 32 votes
11y
One thing I do with my wholesales that do not sell os to create hand written black font on yellow bandit signs that say
Bed/ Bath, SQFT
PRICE
Ph #
Normally if you put these up all around the property, you will get calls. I have sold a couple that way. Hope this helps.
P.S. : sometimes I even put them in other neighborhoods that the prices might be a little higher in, it gets more looks at the property and sometimes people will buy it. =)
boy I'd be very tempted to take the $50k. Then I'd hope the guy defaults! I'd love to foreclose on a 65k house where I'm only owed $15k. No matter how long it took.
You could probably talk him up to 70kb purchase price.
I'd do this all day over a lease option. Not even close.
Why would you do this all day? Perhaps you're not aware of foreclosure works? Say the lender is owed $12K and the property sells for $60K at trustee's or sheriff sale. The winning bidder gets the property, the lender gets their unpaid balance of $12K plus fees. The borrower gets the overage. Waiting for a buyer with equity to default and then foreclosing is not an acquisition strategy nor winning investment strategy.
I do have an agent. I did consider taking $50 and selling the house for $70k. Two issues I have with that is that I want to retain 100% interest in the property until it's sold. Second, After consulting with an attorney he advised against it. If the deal goes bad, I would have to foreclose and that could tie up the house for a year. I would only do a seller finance if I could recoup 100% of my initial investment up front of $65 and let the cards fall where they may.
Your attorney is correct about the seller finance instrument requiring foreclosure to regain possession of the property, but this is not how it typically works in practice. Most likely your buyer would also be defaulting on the first as well. (Why would they keep paying on the first if you could take the property from under them?). This means that if the first foreclosed, you would have to pay them off to protect your interest. Also, you can negotiate with the first pre-foreclosure.
It sounds like the buyer is an owner occupant, but if the buyer is an investor, most will give you back the property before forcing foreclosure.
Either way you having to foreclose would be an unlikely scenario in a seller carried second.
I missed the part that the OP would be in second position. I was assuming that the buyer had $50K in cash, and her seller carry back note would be in first position. Even so, I'd still do it if it was the best offer on the table. If her buyer defaults in a few years there is nothing forcing the her to deal with the first and/or to foreclose. She can walk away at that point if she chooses. And I agree with you that there are more options.
You're smart for recognizing your mistakes which means you're growing as an investor. All the issues you mentioned are side issues unfortunately (busy street, no garage, etc.)...bottom line is you overpaid for a property and likely over-improved it. We've all been there. The key now is to not make that mistake again. As @Jon Holdman stated, price fixes everything.
So with a $50K all cash offer, I say counter with your number and offer seller financing for the balance. Last year I sold to owner occupants with $150K cash and carried back a small note in first position to get the deal where I needed it to be. Lien in first position with tons of equity is about as strong a position a lender can be in.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
11y
Even though I have experience flipping houses, I learned a lot from this thread. This is good stuff and this is one of the best parts of BP. Helping people when things do not go as planned.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
11y
What are local rents? You might consider putting a tenant in place and then selling to an investor.
If an investor won't buy outright then offer to owner finance over 5 or 10 years if they have a large enough downpayment (25-50%) you should be able to sell the note, probably at a discount, but you should get all of your money out and a profit too.
Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
11y
If the seller defaults the house will go to FC and you will get what is owed to you including late fees. legal fees, remaining principle balance etc. You might get delayed but nothing to fear here.
You could also market the house with owner financing. Something along the lines of $5,000 down and $500 a month buys this house. You can then sell 5 years of payments for @ 20k and do that every 5 years for 30 years and you will net 120k over time.
If you sell with the 50k down you can finance 25k for 10 years at 6% and the payment comes out to $277.55. you can then sell the remaining balance on this note to a broker for @18k at (for a 14% yield) or find an end buyer looking for 10% and net 21k, or hold if for 10 years and collect 33k in payments.
If the seller defaults the house will go to FC and you will get what is owed to you including late fees. legal fees, remaining principle balance etc. You might get delayed but nothing to fear here.
You could also market the house with owner financing. Something along the lines of $5,000 down and $500 a month buys this house. You can then sell 5 years of payments for @ 20k and do that every 5 years for 30 years and you will net 120k over time.
If you sell with the 50k down you can finance 25k for 10 years at 6% and the payment comes out to $277.55. you can then sell the remaining balance on this note to a broker for @18k at (for a 14% yield) or find an end buyer looking for 10% and net 21k, or hold if for 10 years and collect 33k in payments.
Lot of options here.
Hi Bob,
I have been researching note buying for the past two months. Came across a website I believe was called "Note Queen". I read up on it and didn't quite understand how the whole selling partial notes worked. I did also read that the amount paid for the note depends on how long the note has been seasoned and how well its performed over time. I understand selling the whole note at a discount but not Im still foggy on partial notes. Im not interested in doing on this property but this could be a strategy I use in the future. Great advice.
Not sure why you are so willing to take a loss on this property when you already own it outright. You've put all this work and money into it, you'd be better off renting it out for a year. Put some cash back into your account, then try and sell it again next year. You could also just refiance it and pull 80% of your cash out and use it to fund your next deal.
I don't know your situation, and maybe you just need the money back ASAP, but it looks like you are sitting in a good spot with a fully paid asset. You can sell it for a loss anytime. Since you own it out right you could even hire PM to take care of it for you and still cash flow.
Reynoldsburg, OH · Member since 2014 · 25 posts · 14 votes
11y
@Belinda R. List at full asking and do rent to own. Market to bad credit buyers and get them enrolled in credit repair. After about a year or 2 find financing.
Real Estate Investor · Fort Pierce, FL · Member since 2014 · 132 posts · 57 votes
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@Steve Babiak
It appears that money is a issue to this individual. When taking out loans there is always some risk. So to play it safest would be not taking any loans out. Some people have had months of monthly mortgage payments set aside, and when hard events came, they didn't have enough set aside in reserves to weather their financial storm.
So assuming cash was pulled out, and the money was put into another property, and then it was rented out and the tenants trashed the place, so it cost a few grand to fix up, on top of the loss of the rental income, and all this was happening while monthly mortgage payments had to be paid, it could put her in a really bad position.
So some of the safets moves would be to
1 outright cash sale
2. Large down payment, and then owner finance the rest with a contract for deed (so hopefully there would not be a lengthy foreclosure process)
3. Like I originally said "rent it out while trying to sell for the max.
Not sure why you are so willing to take a loss on this property when you already own it outright. You've put all this work and money into it, you'd be better off renting it out for a year. Put some cash back into your account, then try and sell it again next year. You could also just refiance it and pull 80% of your cash out and use it to fund your next deal.
I don't know your situation, and maybe you just need the money back ASAP, but it looks like you are sitting in a good spot with a fully paid asset. You can sell it for a loss anytime. Since you own it out right you could even hire PM to take care of it for you and still cash flow.
There have been quite a few foreclosures popping up in the area since I bought the house in 2013. Im afraid this will have a negative impact on my property's value. This will also impact the amount that can be pulled out in a cash refinance, rental potential, etc. I've weighed every option everyone has suggested. If I sell at $65k, I can move on and recoup my losses on a better deal. Also, I want to flip a couple of deals before becoming a landlord. I cant find a lender who will do over 75% LTV. I assume you have a local bank that'll do 80%. A lot of the local banks here wont even touch NOO cash out refinance, only owner occupants.
Real Estate Broker · Oakland, CA · Member since 2014 · 34 posts · 12 votes
11y
Wow, that's a big pill to swallow Belinda. Good luck and thanks for sharing. I get so much knowledge from reading these posts. If I run across anything that may be of help to you, I will certainly reach out.
Investor · Flint, MI · Member since 2015 · 148 posts · 58 votes
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@ Belinda OMG! Is all I can say about your current situation and the suggestions that others have given. Okay, that is not entirely true. I actually have a much better solution to your dilemma.
I hope I do not offend anyone on the thread when I give you other options. I will try and walk on egg shells as I tackle each one.
Let's start with your $50k cash offer and holding a 2nd mortgage on the remaining amount. I'm guessing your attorney that had advised you does not know that much about real estate transactions or withheld some very important information. Although he/she was correct about the one part about having to foreclose if payment was not made there is a better option to help protect you.
As for that other person in this thread suggesting you take 50k and hold a 2nd in hopes to foreclose, unless you like having someone live in your home rent free for 12-24 months than I would not raise my hand for that. ( Been there, did that. No f- - -king thank you)
Now here is some better options to help you out of your current situation.
1) You could take that buyers $50k and go with one of the other people in this thread mentioned, " get them to go up on your asking price of $94k provided that is in fact one that would appraise. Now comes the little creative part. You could deed the property over while holding the 2nd mortgage, but have them sign a quit claim back to you in case of their default. This way if they get stupid you can evict instead of going through the foreclosure part. ( I would run this by a real estate attorney on how to structure that or I could show you.)
2) Option, you could offer lease purchase terms at full asking price with some down payment in place. Start getting monthly residual while getting the continued tax write offs. You can write off up to 70% as a loss for the first 5 years on a rental property and if they default you keep the down payment tax free because there was never a closing that took place. ( Again, be sure to talk to your local CPA because some states may have different laws, but I do believe it to be true in all 50 states.)
3) Fire your agent. This is an extra cost you don't need. If you don't know the first thing about marketing a home for sale or drawing up contracts, negotiations, etc you can always hire an agent on a retainer to help with minimal services.
4) If you are really wanting to get cashed out to buy another property than I guess the 50k seller held 2nd would be the most attractive of the 3 options above.
Now we have a turn key operation at our investment company where we can get our fellow investors 100% financing deals all day long. In addition, we provide a 50/50 partnership and have a tenant/buyer already in place before you close on the home. Now if it needs work we roll in all those cost into the loan as well to make it easy for you. Just something to consider moving forward on your next venture.
Don't beat yourself up too bad. You can still come out of this in great shape provided you follow one of these above options. If not, we may watch you run off the side of the cliff.
Feel free to reach out to me if you have questions.
Real Estate Investor · Raleigh, NC · Member since 2011 · 142 posts · 39 votes
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@Belinda R. I would assume with any property that is on the market that long it is over priced. First step on your next deal is to hire an agent who will give you an accurate price not just get a listing! Those agents you need to run away from.
As stated above I would take the 50k nonrefundable down payment make them responsible for all repairs Maintience etc set them up on a lease to own so if they default you can get the house back faster than a foreclosure. Next make there monthly payment interest only and give them 12 months to buy maybe 24 months. If they default you could essentially sell the house again for 35k and make what you were originally asking. But after 10+ months on the market you should take the deal, lick your wounds and move on to the next one. Not every deal goes perfect keep your head up you seen well balanced you will do well in the future.