Possible deal?? What do you think?

Question

I know a guy who is behind on his mortgage and is going to let the house go back to the bank.

I would like to make him some kind of offer. It may be too soon to ask this because I dont have all the details yet, but I would like to hear your thoughts.

First off, I know the house has some foundation issues though I dont know to what extent. There was also termite damage that from what I know of was not dealt with professionally. He has been in the property for about 10 years so I would imagine there is some equity there.

Can I offer less than what is owed on the property? Why would a seller agree to that? Is that even possible?

Could I pursue a sub to ? Take over the financing and rent it out? Would I be looking to give him any cash in order to do that?

Other options?

Thanks again, BP community!

Ugochukwu Opara · Answer

Yeah @Joe Butcher . I'm going to side with @Wes Eaves  here.

1. Find out the cost to resolve foundation issue + termite issue

2. Find out cost of bringing payments current

3. Deal analysis: If numbers work, then assume the mortgage (if applicable)

3.5 If not assumable then just draft up paperwork to purchase the property with seller financing in place (original mortgage).

Hope that helps. Keep us posted buddy. Cheers

Wes Eaves · Answer

If you're strategy is to use it as a rental, I would find out the cost to resolve the foundation and termite issues, as well as how much it will cost to bring payments current.  Once you have all that information, you just need to see if the numbers make sense and there is a positive cash flow.  You'll have to decide whether you want to pay out of pocket for repairs and back payments or find someone willing to take a 2nd position mortgage.

I think the equity is important mainly if you're trying to sell it as opposed to making sure there is cash flow from renting it (my opinion).

Joe Butcher · Answer

@Wes Eaves

Since there is some distress to the property AND he is behind on payments does that lessen the chances of a sub to making sense? I imagine that there would need to be a great amount of equity to justify me paying for the repairs and getting the payments up to date?

And yes I would be considering using it as a rental.

Zach Schaar · Answer

@Joe Butcher

I agree with Wes, you would want to see first if the loan is assumable, and then look at your numbers. If you're making positive cash flow and there's equity in the house, that's a sign of something good.

I would figure out how far he is behind before anything else. That's kind of going to determine whether or not it's worth it or not, atleast in my opinion.

Now assuming there is equity and he isn't too terribly far behind, I would also take into consideration the extent of the termite and foundation issues as you stated earlier. You don't want to open a can of worms!

Best of Luck!

Wes Eaves · Answer

@Joe Butcher It would make sense to take over existing financing if you wanted to use it as a rental and the TRUE cash flow calculation is positive.

Joe Butcher · Answer

Also, what is the optimum situation in which a sub to makes sense?

Joe Butcher · Answer

Thanks @Jerry W.  and @Zach Schaar .

Could there be a situation where it makes sense to pay the payments he is behind on and then take over the financing? I imagine there would need to be a considerable amount of equity there for it to make sense?

Zach Schaar · Answer

Hey Joe,

Making him an offer for less than what is owed on the property is possible. It's called a short sale. Short sales are often long, drawn out processes where you go back and fourth with the bank over a period of time. They are good, but take alot of time, but if the deal is good enough, give it a shot. A seller would typically agree to this if they are upside down on the mortgage and just want out..(typically).

In my opinion, assuming the loan subject to depends on what kind of loan the owner has in place. Also, if he is behind on his mortgage payments I don't know how well of a decision that would be to make. But that's just me thinking logically, it could work depending on the numbers.

Jerry W. · Answer

Hey @Joe Butcher , the most important thing at this time is getting an accurate value on the property.  Even if you get it for what he owes, it may be more than its worth.  There has to be equity in the property for it to become a deal for you.  Figuring value includes finding out how extensive the problems you mentioned above are.