Possible exit strategies on this preforeclosure?

Question

Preforeclosure worth around 230k. owner owes 245k left on the mortgage. The house could rent for 1400-1500. Assuming she can’t sell it on the market, what are the possible exit strategies for this house? I am thinking currently the best option (assuming her financing allows for nice cash flow) is a purchase subject to then sell with owner financing. What would you guys do?

Chris B. · Answer

I'm curious why someone would pay $15K more than the property is worth when you can buy the next property down the street for actual market value?  Is the subject to / sell with owner financing option that makes this the more attractive deal somehow?  How hard would it be for you to flip it and find a buyer to purchase it from you with this type of financing?

Chris B. · Answer

Thanks for the additional information.  So say you get a 20% down payment, you might get something like almost $50K down and you would be charging the new buyer a higher interest rate and the difference would be profit.  I assume that means you have connections that would let you complete this deal which is the final piece.  You can profit and you can help a buyer would normally wouldn't qualify get a home.  Nice.

Brett Goldsmith · Answer

Short sale. I don't personally invest money into properties that will be  upside down for the foreseeable future.

Rick Pozos · Answer

So the mortgage is 245k and you are going to sell it for 300k? but its only worth 250k?? to someone who can not get a great interest rate like others can?

I have sole some properties that have a higher interest rate because they are owner financed. I have sold some houses that are right at or a little higher than market price. I have even sold some that need work(with full disclosure at a discounted price).

I think it is REALLY wrong to sell someone a house that is WAY overpriced at a high interest rate because they can not get a mortgage. And I bet it needs a little work also, right? Just because they have financial issues that cause them to NOT be able to get a loan, you should not gouge them even harder on so many levels. Maybe a little higher price OR maybe a higher interest rate OR maybe some repairs that you disclose, BUT not all three!!

Just look at it and realize that the deal does not make sense and go on to the next one. Karma will follow you!!! Do the right thing.

Wayne Brooks · Answer

@Austin Wood What do you do if the lender calls the note due, or your buyer stops paying, after you’ve sold it on a wrap?  Loans in default tend to get more scrutiny.

John K. · Answer

@Austin Wood

There is also another method, that my work.

If the property is in a really strong neighborhood with a history of consistent appreciation, say 7%, you can hold it for 10 years and sell at that time.

230K Value Now = $452K value in 10 years @7% appreciation.

Clearly will only work in a neighborhood that has that history, otherwise it's flipping coins.

David M. · Answer

@Austin Wood

Maybe I'm being a bit dim, but you are going to have to explain to me how that works...  For starters, this looks like a short sale, really...

So, you want to purchase subject to.  After that transaction, you are out whatever cash you paid the owner and now have a $230k valued property with a $245k mortgage (under somebody else's name).  You are still underwater.  Then, you want to sell with owner financing, so you are going to take a 2nd lien position for your buyer?  Huh?  I am so confused.

Austin Wood · Answer

@Darius Ogloza it can be risky if you don’t get good buyers. We push our buyers to refinance as quickly as they can

Austin Wood · Answer

@Darius Ogloza I protect my own interest until the time which I sell with seller financing. Then the end buyer would get the insurance check. But through the whole process the original mortgagor would need to be on the policy as an additional insured

Austin Wood · Answer

@Rick Pozos who said anything about selling for 300k? I would sell it for 250 max and so far have been using an interest rate of 7.75% on these. I have seen others go as high as 12%.

Possible exit strategies on this preforeclosure?

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