Can anyone maybe see something I don't?

Question

I have a property I am looking at

https://www.zillow.com/homedetails/27003-Trinity-W...

It may soon enter into forclosure...the family is willing to rent from me if I purchase the house. I'd be walking into some huge equity since they want to sell it for what they owe on the deed. which is 140K. Contingent on the basis that I will sell it back to them for what I owe in 2 years....yes this sounds a little crazy, but this is for family and they just don't want to lose thier home. I feel like this would be a grerat stepping stone to start my business. I have never done this before.

From what I see. I may get up to about 71K in Equity I could leverage to buy another rental in the same city.

The home does not need rehab so I used the rental calculator.

Please any feedback is deeply appreciated!

Here is the analysis I came up with.

https://www.biggerpockets.com/calculators/shared/736013/2c72969c-1ad9-4166-9fa6-843e2f8b26e6

David Dachtera · Answer

@Mason Lopez,

Yes - check the local laws. Where I am, when a property is foreclosed, the previous owner MUST vacate. If they sell to you to prevent the foreclosure, that may be another matter, but still, check.

Not sure why you'd want to buy and rent it back to them. If they can't make the house payment now, what makes you think they will be able to reliably pay rent to you? ... family or not? Are you prepared to subsidize - or donate - their housing for an indefinite period?

Greg Moritz · Answer

As a rental these numbers are pretty terrible.  So, I wouldn't hold it unless your strategy involves long-term break even/slight-loss properties to benefit from appreciation/paydown.  Make sure that's a conscious decision you are making though, because that strategy has both benefits and risks.

In terms of getting immediate equity... what do the comps say it the home is worth (and I don't mean the zestimate)?  How quickly could you sell it if you need to?  Is there a lot of activity around there?  How is the neighborhood trending?

Chris Martin · Answer

They can't pay the mortgage, but they will pay rent for sure.

I'd google texas foreclosure rescue regulations first, and see what the rules are. Just my opinion.

Gerald Hand · Answer

@Chris Martin brings up an excellent point- what is going to change for them if you hold the note in lieu of their current bank?  Perhaps they are victims of an ARM and are not able to refi the property so hoping you will come in and stabilize that monthly nut until they can clean credit and buy back from you.  It definitely bears asking the question how will they now suddenly afford the payment they currently cannot. Bad news does not get better with age and looking at the decoration in the home, it would appear perhaps they are in over their heads.

Jared Franklin · Answer

@Mason Lopez I would find a realtor that is local to your market, preferably one that is investor friendly because they will be more knowledgeable (since you are just starting out) and be able to consult you with the best action you should take. They will also be able to help you with your local market and narrow in on what the home is worth in that market, how its trending and this should help you have a better understanding of what your exit strategy should be.

+1 to everyone else that mentioned if they cant afford their mortgage chances are they will default on their rent as well. Family, i found, tends to be an up hill battle in these types of situations because they feel they can get one over on you because you are "family" or that you wont hold them accountable 100% time. Just be careful, and make sound judgement.

Can anyone maybe see something I don't?

Most Popular Reply