Unexpected Wholesaling Opportunity: Neighbor's House - Opinions?

Question

Alright so I didn't intend to pursue wholesaling... but this potential opportunity has fallen into my lap and I'd love some opinions on if I should look more into it and if so, steps to take!

This weekend, our neighbors told my husband they were in foreclosure. I did some research and this is What I Know:
- They bought the house for 83k in 2000
- It's a 2br 1ba with finished loft, 992sf
- 2012 tax assessment was 34k
- There are a ton of comps ranging from 21k-80k (there was really only 1 at 80k and one at 72k - both were in great condition. the majority were 21-45k and all in great distress)
- I have not seen the inside yet, but I plan to go over and try to start a conversation with them and see if I can take a peak. My guess based on them/the outside is that it's nothing fancy.

Thoughts? What are my options to help them and potential "have control" over what happens with this house next door?

I'm not sure how far into foreclosure they are - what questions should I ask regarding that when I go visit them?

Thanks in advance!

Beth D. · Answer

Thank you Steve Jarman! I's love a contact to add to my list if you don't mind :)

Steve Jarman · Answer

Yes, @Jon Holdman is correct. If they owe more than what you are wiling to pay, a short sale would be the way to go. If you go that route find a good agent that is aggressive with short sales and give them this lead, but make sure they keep you in the loop so you have the chance to make an offer as part of the short sale process to get "first bid".

Also to Jon's point, make sure your comps are solid before wasting too much time on this. If it turns out to be a great deal, finding a buyer should be a problem, but that is your first step to make sure you have enough profit in the deal to have it make sense for you and for your end buyer.

I have a pretty good contact in Michigan who works a lot with foreclosure situations. He also does a lot of fix and flips in the area so he could be a potential buyer if it turns out to be a great deal. Due some more homework on your comps. Ask an agent to run some for you (you might have 2-3 agents runs comps to compare).

It's all about learning from the process so keep moving forward!

Beth D. · Answer

thank you Jon Holdman! tons of great advice!

I am definitely not looking to make the bank with this deal :) but I would love to help them out and have some type of input on what happens to the house (having it fixed up/sold by an investor versus sit empty).

I will absolutely start looking into who may be interested in buying it and find more about their loan balance.

And regarding comps - I agree the range is huge. I'll have a better idea once I get inside, but my guess is it fits in the 25-40k range... with a ARV of 65-80k. that's the best I can do for now :)

thanks again!!

Jon Holdman · Answer

If they end up netting less from the sale than they owe they will need to do a short sale, a loan to cover the shortage, or both.  Given when you write, you should do some serious studying on short sales.

Your first problem is to figure out what its worth.  Your range of comps is so large that its useless.  You have to figure out which are really comps and which aren't and try to find a value.  Without that, this deal is going nowhere.

Finding the loan balance is easy.  They can get that with a call to the lender.  For you to talk to the lender, they will need to give you authorization (a form, maybe notarized.)

You need to figure out if there are potential buyer's interested in this property.  If there are what will they pay?

This appears to be a low value deal.  At most, you're looking at a few grand for your time.  Might be a good learning experience, but unlikely to make you much money.  But find out the value and the potential for buyers and you might have somewhere to go.

Beth D. · Answer

thank you Steve Jarman!
I do know they don't want to stay. They have four kids in what's technically only two bedrooms (yikes!) - so I guess the biggest things will be finding out what they owe.

If they, for example, owe $50,000 and I want to offer them 25-30k how does that work for them/their bank mortgage? do they have to attempt a short sale or do they try to take out a personal loan for the difference?

Thanks :)

Steve Jarman · Answer

Hey Beth, I'm fairly new to wholesaling, but what I have found is that getting to the bottom of what the seller's needs are is the most important. For instance, are they hoping to stay in the home? Are they in the process of a bank modification with their loan?

If they have other plans and feel they cannot stay in the home, what do they owe? How far are they behind on payments? What interest and penalties do they have if they are behind on payments? Are they also behind on paying property taxes for the year or prior years?

Once you have this information and have identified what it is that they really need/want, then you can determine how motivated they are and what price you could potentially offer them for the house to lock it up and get it under contract.

Depending on where they are in the foreclosure process will also let you know how quickly you will need to act to stop or slow down the foreclosure. It it turns out to be a great deal and you can help the seller get what they need to walk away from the situation and save their credit, then you could offer it as a wholesale to another investor for a flip or an income property.

Hope this helps some. Good luck and let me know how it goes.

Steve