Is there a deal here?

13 Replies

I was speaking to my niece today and found out she has a property that she doesn't care too much about. Not too long ago she was willing to lose it because she owe's more than what its worth. At the moment it has tenants that provide her $3 cashflow a month. This is after a modification, before about $300 was coming out of her pocket. She wouldn't tell me out of embarrassment however I believe its underwater at least $100k. 

I was thinking of subject to in this situation. What do you all think is a possibility? She doesn't care for keeping it or letting it go. I would have to do some more research to get an idea of how much rentals are in the area.

Thanks

What type of deal are you thinking? You could try a short sale but I would imagine a bank isn't going to consider selling to a relative especially when she isn't behind on payments.

To confirm, she is cash flowing $3 a month? What is her monthly mortgage payment? How much rent is she collecting and how much do you think you can rent for?

Yes, $3, lol. Rent is $800, Mortgage is $797. Its less than 10 years old, new construction,  lot is about 1/4 acre. I am thinking easy $1200 at least. 

I was thinking "subject to" as a route. 

Why would you want to buy something sub2 that is probably $100k under water?

If you are trying to help her, that's one thing, but from an investment standpoint it doesn't make any sense with the numbers you're giving. That $3/mo is losing money in real life with repairs, vacancies, etc.

Did your niece care enough to properly account for depreciation and other tax deductions? Also, is this her only property and if not, does she have other properties with that may not have been closely managed?

Figured with sub2, I could cash flow the property if rents we going higher.  Unsure if thinking that way makes a speculator or investor.

I doubt she has accounted for depreciation. This was supposed to be. her investment property, however market crashed and she got stuck with it.

Jose,

If your numbers are right on rents, you're cash flow would be great.  However, the fact that she has a significant amount of negative equity ($100k) would kill it for me.  You would be looking at 7-10 years if not more before you would possibly be at a break even point of market value.  While cash flow is great, you need to have an ability to build equity over time.  The biggest reason being if you need to sell. 

Dan Walters, Treasure Valley Home Solutions | [email protected] | 208.287.5450

@Jose Diaz  

Good luck, sir.

That is not an easy transaction to close on.

I can not think of anyone who would by the home while it still has that much debt attached to it.

Maybe an investor who wants in the game but no other way?  Long term it would make sense.... If everything goes right......

Im not a buy & hold guy but im pretty sure theres more to cash flow then rent - mortgage. Aaron goes over it briefly in podcast #37. Im sure there are landlord centric podcasts but i havent listened to them.

@Dan Walters  @Terry Evans  I would be looking at long term for this to make sense. If everything goes right, it may make sense as a buy/hold investment. However, no one knows what the future holds for us.

@Russell Ponce  You are probably right as to the aspects of buy/hold. I still need to educate myself more to make sure this works or not. The negative equity is a real bummer, unless I can short sale it in the future.

Take into consideration that you are not dealing with your credit.  You will be taking over someone else's mortgage and your performance on that is tied to that individual seller's credit.  If you move forward with this transaction and 2,3,4,6 years down the road you decide to sell via short sale, you will be effecting their credit after they have already moved on from the property years prior.

In taking properties over sub2, you are providing a solution for the seller so they don't have to go through a sale that will negatively impact their credit.  If the potential down the road is a possible short sale, just do it now and get it over with.  Otherwise you run the risk of burning a bridge and creating a bad reputation for yourself.

Dan Walters, Treasure Valley Home Solutions | [email protected] | 208.287.5450

Originally posted by @Dan Walters:

Take into consideration that you are not dealing with your credit.  You will be taking over someone else's mortgage and your performance on that is tied to that individual seller's credit.  If you move forward with this transaction and 2,3,4,6 years down the road you decide to sell via short sale, you will be effecting their credit after they have already moved on from the property years prior.

In taking properties over sub2, you are providing a solution for the seller so they don't have to go through a sale that will negatively impact their credit.  If the potential down the road is a possible short sale, just do it now and get it over with.  Otherwise you run the risk of burning a bridge and creating a bad reputation for yourself.

 Understood. Didn't think about that. Thanks 

subject to doesn't make a bad deal good. It makes a good deal great.