What if the owner has money left on his mortgage ?

Question

I NEED ADVICE

i Ran apon a home owner who has 295k left on his mortgage. House is worth more then that. I wanna make him a cash offer ( I have a hard money lender ). How much should i offer him with the thought of selling it to a person for rental purposes?

David Dachtera · Answer

Ok, @Ray Agosto,

"Under contract" does NOT refer to a listing contract. Has nothing to do with whether it's listed or FSBO. It refers to a purchase contract.

...and now that you've mentioned an ARV, it looks like you should analyze it as a possible rental property. Do you know how to do that? Take the principal and interest portions of his current monthly house payment, add 1/12 of the annual property taxes and 1/12 of the annual homeowner's insurance premium (plus the monthly HOA fee, if any), and see if the total is less than the rents for homes in the property's area (an agent/broker can get that for you if you need help). If the total IS less than area rents by at least $200, it could be a good rental deal. You'll need to scrutinize it further.

However, if that really IS the ARV, there's very little room for profit after closing costs, etc. as a flip or wholesale. Best to move on.

Brent Coombs · Answer

He probably should just list it, to find its next owner-occupier. Move on...

Ray Agosto · Answer

Its not under contract , its a house for sell by owner. He wants to sell it soon as possiable due to the fact he owes money on it. The mortgage is worth 295k whats left on it. No rehab needed or anything so is it honestly even worth looking at it because ARV/MArket price is 305k so is a contract worth it or just move onto the next deal ?

David Dachtera · Answer

@Ray Agosto,

What WAS the asking price? What are the CURRENT comp's?

...and did the seller tell you all he wants is what he owes the bank (plus his share of the closing costs), or are you ass-u-me-ing? He doesn't want / need any profit?

If you're wholesaling, then, by definition, you ARE putting the property under contract. If you've never heard it before, the definition of wholesaling is you put the property under contract with you as the buyer, then either assign your position in that contract to someone else for a fee, or use transactional funding to complete the purchase, then immediately flip it to the end-buyer for a profit (back-to-back closings: A -> B, B -> C. A = the seller, B = you, C = the end buyer).

Brent Coombs · Answer

Your Offer should be no different than what the numbers tell you will work for you.

If the dollars that your BUYER would be paying is higher than the mortgage, AND, you have such a Buyer willing to buy it, you should be good to go!

(Mortgage gets paid out at closing).

Now I suppose you're going to tell us that you really want to offer less than the mortgage? If that's the case, you should have said so to begin with. Look up "short sales". Not for novices! Cheers...

Brent Coombs · Answer

You can't do anything with it if it's not under contract. We can't advise if it's "worth it" unless you can tell us what its REAL value is in today's market, in that location. Numbers please?...

Ray Agosto · Answer

@David Dachtera

Not anymore but the home owner is the seller & he is trying to pay whats left and that's 295k.

That's the only needs he is really acting for.

yes i wanna wholesale the property but is it really worth it or is it better to put it under a contract ?

David Dachtera · Answer

@Ray Agosto,

Is the house currently listed for sale? What's the asking price?

The fellow you should be talking to is the seller. What are THE SELLER'S needs?

Fill the seller's needs, and you're golden so long as the numbers still work in your favor.

It sounds like you're thinking of wholesaling his one. So, make sure the seller knows that if he signs a purchase contract with you, he may be closing with someone other than you.