Inspector · Alsip, IL · Member since 2008 · 361 posts · 75 votes
Hi all! I am speaking with a woman who has a probate property she wants to get rid of. I figured the quick sale ARV to be around 110,000. It seems to need about 20,000 in repairs, 2,000 in back-taxes. The original mortgage is paid off, but there is a 75,000 heloc on the property @3% that the owner took out to fix it up. On the surface, it seems like a really workable deal. Perhaps as a sub-2? Only problem is, she has a tenant in there that hasn't paid rent in 7 months. And she's afraid to evict him because he's a bit of an unsavory character. If I could get rid of the tenant for this woman, she would probably be happy to give me the property at a great price, or let me take over payments (and wholesale my position). Any thoughts on how this might be accomplished, or if it's worthwhile to deal with a tenant like this? Thanks guys! :cool:
Something to watch for with HELOC and doing sub 2 is: HELOC stand for "Home Equity Line Of Credit", and a line of credit is usually "open ended". A HELOC comes with a checkbook, and you just write checks against it. In a sub 2, you don't want that seller to write any more checks; the draw period on the HELOC has to end and the repayment period entered, or the line has to be closed somehow. If not, that seller might just write a check and you end up making a bigger payment!
Hey Nick! The property was willed to her, her sister, and her nephew. They've owned it for 9 years, though she's really the person that handles everything in that regard. She assured me that they are all on board.
I just spoke with her, so I haven't been in the property yet. I left her a message saying that I had 2 offers for her, and am awaiting a return call. She was really upfront about what the place needed. She said it needed a new roof. The old one is ok, but it's 20+ years old so I just figured it in. It needs a new furnace, updating of the electric (not the service, just wiring and outlets). One of the 2 bathrooms needs some updating, though not much. New toilet, sink, and maybe some fixtures.
Basic patch and paint in the basement. $20,000 was a pretty conservative estimate, only because I haven't seen it yet. That included about a 5% fudge factor as well.
I would be chomping at the bit to take a look at this place, but my question is, would it be worth risking life and limb dealing with the tenant, and if so, what would be the best way to deal with him? I don't think she's going to evict him if she feels I (or a buyer) can handle it for her. That seems to be her main motivation, so I wanted to leave that on the table for now.
I figured if that could be done, it wouldn't be a bad sub2 candidate. The payments are roughly $250/mth on the heloc. Taxes are roughly $1800/year. The house in good condition would easily bring in 1200/month if not more, so the cashflow potential is definitely there imo.
The other thing that I thought might work (and this is just me thinking here) :idea: is that if she could somehow negotiate the heloc down with the bank, a cash offer would work. Or alternatively, she is already 2 months behind, so possibly it could be short-ed for the cash offer as well. Man, the wheels are turning... :D
She took out the heloc, not the deceased. She did fix a lot of things up. There were major problems with the plumbing and some mold/water damage in the basement. She fixed that and got a sump pump system installed around 2002. I imagine that she didn't spend all of it wisely.
When I talk to her again (today sometime if I have anything to say about it) I will tell her she will have to deal with the tenant and bring the heloc and taxes current. Should only be 2500 to do that, so I'm sure there's someway she can come up with that.
Normally, when you buy a property sub2, how long do you keep the seller's name on it, so I know what to tell her? Would you want to refinance it and get some cash out, or sell it?
I was just wondering, does the heloc have a due on sale clause? I've heard that if a house has a heloc you dont want to touch it subj-2 cause they have a nasty ability of calling it due. Is this true?
Something to watch for with HELOC and doing sub 2 is: HELOC stand for "Home Equity Line Of Credit", and a line of credit is usually "open ended". A HELOC comes with a checkbook, and you just write checks against it. In a sub 2, you don't want that seller to write any more checks; the draw period on the HELOC has to end and the repayment period entered, or the line has to be closed somehow. If not, that seller might just write a check and you end up making a bigger payment!
Wow Steve thats exactly what I was thinking about but I wasn't sure it would apply when you take it over. So basically, when you take over a house with a heloc attached there is a possibility that you'd be expected to pay back that credit pretty soon.
I guess the fact that she doesnt have the original loan left on the property would mean it would be kinda impossible to get the property subj-2 !!
Id be interested to see what Nick has to say about this situation with the heloc...
Id be interested to see what Nick has to say about this situation with the heloc...
I aint skeeered!
Sub2 is a short to mid term strategy for me anyways. Steve isn't and wasn't saying you CAN'T do a sub2 on a HELOC, he was merely saying be careful b/c of the point he mentioned.
It doesn't matter if it's a Heloc or Dreadlocks, if she has a payment, I'll Sub that sucker out :mrgreen:
Same thing goes for any other property that has two liens (Primary loan & Heloc), they're liens/loans, whats the difference?
Sub it out, execute your exit strategy, cash out and move onto the next one! Period!
My exit strategy for this one would be to take it over with the very attractive interest rate, inform the Dreadlock hippy Heloc guys that I'm buying the house with 'some owner financing' put a few bucks into it to make it 'visibly' attractive to a home buyer that wants a 'fixer upper' and collect my money put into it from the L/O and set it up to cash me out with a refinance within 12 months.
I would make sure they have a mortgage broker on their booties to get them qualified to refinance me out.
Cash out, call it a day and take a nap and do it over again.
inform the Dreadlock hippy Heloc guys that I'm buying the house with 'some owner financing'
Hmm so if I understand you correctly you'd tell the lender that your taking over payments? Wouldn't that just trigger them to call it due? I always thought that subj2 deals were kinda done in the background and you kinda hope that the lender doesnt call it due while you hold it?! So you tell the lender before you close that your taking over payments?? Now is this just for HELOC or even traditional Subj2 deals? This is great stuff Nick btw! Thanks for all the help!
ya, I tell them I'm buying the house with some 'owner financing' which is 100% accurate, truthful and NOT deceitful.
They'll know b/c if you do it right like I do, you'll insure it properly and if your insurance agent isn't a shady mobster then he'll do as he's supposed to and notify the lender of insurance changes.
That's when I notify them. I don't call them up out of the blue and tell the kid on the other end of the phone some stuff he has no clue about. I have it included in the insurance change letter.
any time 'interest' changes whether it's via a deed or a through some shady land trust method, the fact is, it 'triggers' the due on sale clause.
Don't let any wannabe rockstar tell you otherwise!
Dammit that's nice! Thanks for sharing all of that Nick. I'm still trying to get ahold of this lady, but I'll let you know as soon as I do what she says. I'm going to have to switch up my strategy with her a little bit, but She might just go for it. She's also moving out of state, so hopefully having to deal with the tenant herself won't be a deal-killer for her.
ya, I tell them I'm buying the house with some 'owner financing' which is 100% accurate, truthful and NOT deceitful.
They'll know b/c if you do it right like I do, you'll insure it properly and if your insurance agent isn't a shady mobster then he'll do as he's supposed to and notify the lender of insurance changes.
That's when I notify them. I don't call them up out of the blue and tell the kid on the other end of the phone some stuff he has no clue about. I have it included in the insurance change letter.
any time 'interest' changes whether it's via a deed or a through some shady land trust method, the fact is, it 'triggers' the due on sale clause.
Don't let any wannabe rockstar tell you otherwise!
Hey Nick! Thanks for all the frank help! Not many ppl seem to know about Subj2 like you do! So I'm honestly still a little confused when exactly you tell them...
This letter you send is after the closing with the seller after the warranty deed is signed? Isn't that inherently a little risky since if the lender calls it due then, you gotta pony up the cash, which for someone whose just starting out (me), they just dont have the cash on hand, or the credit to run to a bank for some conventional finanacing...!!