What would you do?

Question

Home listed for $500K (Total beater in great area)

On market for over a month so clearly they aren't getting near that number

2/1 900sf

Needs complete gut job and possible addition of bathroom and bedroom on same level

Socal remodel prices for a newbie ($175-200sf)

ARV after the rehab $575K

Scheduled to be SOLD at auction 9/2, $387K owed on the house, $32K behind on payments

What would you offer and how would you structure it? I was thinking bring the loan current and take over sub2 or do lease option and offer to pay agent commission...or just flat out offer what's owed plus agent commission, and use a 203K to do the repairs and not pay out of pocket.

If I take over Sub2 in CA, will that keep the taxes the same? Because they are really low :-)

Thanks!

Curtis

Curtis H. · Answer

Hey all!

@Brian Gibbons @Joe Villeneuve @Nick Wing

Thanks for the feedback. Sorry I stepped away for a bit...

So things are progressing, but the plan has changed to me living in it and taking over Sub2 after paying back payments. I will renovate the house when I get enough money to do so, and either sell it and upgrade or stay there if I like it.

So here are some things I need help with fast...

What is my answer when they ask "what happens if you stop making payments?" "How do I know you are making the payments"?

Also, besides helping their credit, are there any other benefits to Sub2 for the owners walking away?

Brian or anyone else, if you know a good real estate attorney who can draw up a contract for Sub2 please send them my way. If you guys have contracts you have used and know works, I'll take those too!

This deal could be going down tomorrow and I want to act fast.

Lastly, it's ok for me to negotiate a lien with Unemployment and the back payments with the bank right? Or should I not be drawing attention to the fact I'm taking over the loan?

Help!!!

Nick Wing · Answer

Curtis,

You may want to take a look at this deal and re-analyze it. If you bought it at what they owed ($387K in a short sale, this is the route I would try and travel), you will be buying it at $430 sqft. For this to make sense it is totally dependant on the neighborhood, where is it at?

Also if the rehab is going to cost $175/sqft.... that makes it a $157K Rehab? In my experience, around 50 Flips last year in SoCal, a 900 sqft house should need no more than $15K in a normal area, and $30K in the highest end of neighborhoods. Even with added sqft, it should not exceed $50K - $60K.

How much cash do you have to bring to the deal? I would not pay anymore than what the current seller owes on the loan. Try and get the lender to approve a short sale to you at the amount they owe, which may get them to work on it before foreclosure.

Joe Villeneuve · Answer

@Curtis  H.

I'm with Brian on this one.  ,...and yes, the closer to the auction they get, the less likely they are willing make a deal...especially if the property looks like it could auction for more than the outstanding debt.

Joe VilleneuveREcapSystemA2REIC

Brian Gibbons · Answer

Where is it @Curtis  H. ?

Do you have cash partner to buy and improve?

I would do a JV with with the seller, buy it all cash at say $400K (slight discount of all owned) pay the Realtor 6% of $575 but no money until house resells.  You could put a lien on the house for their commission.

Pay the seller $20K walking money when the house resells.

The ONLY way you get this deal is get a Credit - Cash Partner.  If it goes to auction, it may sell for $450 depending on area and schools.  It may pay to be a tear down and rebuild.

Curtis H. · Answer

@Joe Villeneuve

Very good questions, and yes the price is true. I can't believe it myself.

My exit strategy is to live in it for a couple years and then sell, or simply get it under contract and flip it to an experienced rehabber in the area.

Money wise I would do a FHA 203K Rehab, 3.5% down. Lot of red tape but about as cheap as money can get in this scenario.

Seller's lien holder is the bank, so I would imagine if I could write them a check for the back payments and they are likely to reinstate the loan? Do banks actually tell people they CAN'T reinstate the loan before an auction in a couple weeks?

Joe Villeneuve · Answer

1st, my head is spinning with an AP of $500k on a house less than 1000 sf...and a beater at that.  Here, you take a "0" off the back end, and it's not a "beater".  Another example I guess of why so many California investors flip houses in California...but are buying holds in Michigan.

Back to your situation.  I assume you're going to be holding it for a rental, based on your numbers.  The questions I have first is:

1 - what is your "exit strategy".2 - what cash are you bringing in to use3 - what is the cost of your money (loan/debt) over the time you will be rehabbing  4 - with the auction so close, is the seller's lien holder willing to settle before auction.  Depending on who that is, you probably won't be able to do a L/O from them.5 - what are the typical days on market in that area

Joe VilleneuveREcapSystemA2REIC