What do you do when the property has negative equity?

You may want to analyze each property and determine how much negative equity is in each of the properties you are considering. If you can get great financing and the propety can cash flow itself, it may be worth the risk. Always run the numbers on the yearly cash flow and determine how much will be paid in interest over the life of the loan. Sometimes, a small negative equity property can look better if you have great financing. Also determine and analyze the market area you are in. Is there a good chance the area will rebound in the next few years? If so, this can make sense and be a nice investment. Good luck with your deals. Believe and Achieve!

You may want to analyze each property and determine how much negative equity is in each of the properties you are considering. If you can get great financing and the propety can cash flow itself, it may be worth the risk. Always run the numbers on the yearly cash flow and determine how much will be paid in interest over the life of the loan. Sometimes, a small negative equity property can look better if you have great financing. Also determine and analyze the market area you are in. Is there a good chance the area will rebound in the next few years? If so, this can make sense and be a nice investment. Good luck with your deals. Believe and Achieve!

You may want to analyze each property and determine how much negative equity is in each of the properties you are considering. If you can get great financing and the property can cash flow itself, it may be worth the risk. Always run the numbers on the yearly cash flow and determine how much will be paid in interest over the life of the loan. Sometimes, a small negative equity property can look better if you have great financing. Also determine and analyze the market area you are in. Is there a good chance the area will rebound in the next few years? If so, this can make sense and be a nice investment. Good luck with your deals. Believe and Achieve!

If the owners are behind on payments and can prove that they can't make payments (based on something more than just not being able to control their spending), then have them call their lender and ask for a short sale package. While they're on the phone, have them add your name to authorize you to deal with the bank for them. (I think they'll need to send something in writing as well to give legitimacy to their request.)

Thanks for the info Indiana-Joe and HisChosen! I will definitely look into that.

My Husband was curious if people walked away because of the negative equity on property. I'm willing try anything out but I thought walking away would be better because I can avoid the hassle.

R.E. Budda, are you going to be buying this house for your own purchase/investment? Or are you going to implement a technique here?

Just remember that the mortgage/loan is personal property , and the house remains as real property. Therefore, be careful on what the turn out would be if you correct this issue and if there is anything that remains outstanding against the house.

I would imagine the short sale would be a viable solution if you can get the lender to cooperate with your offer to "create equity" for you.

Are these distressed sellers that you have come across and you have received a little information from them on the houses status but you're reluctant to pursue because of being " upside down " ? Your username perhaps indicates a Real Estate relation, you don't want to do a short sale with/for them?

Each property has to be viewed individually. The fact that a property has negative equity may mean nothing. All you have to do in many case is get an appraisal done and submit it to the bank. They will issue, of course, their own appraisal.

Either way, as long as you can get the property and have POSITIVE equity in it -- why the hell not????

Yuri

Remember our actions are full time and the offers are part time! Give your best offer and move on to the next one.

After researching the properties with - equity, try playing a few different angles and see what happens. Especially with REO's that have been sitting a long time and the banks need to move em. Make an offer, show why it's better for them to unload it and see what happens.
Just be careful not to tie up too much funds in one of these deals in case a smokin one comes along after.

CAM-

if you are wholesaling, can you use an iee contract (since most banks don't like and/or assigns) to flip to another investor? I wondered if i ran across a situation where someone had negative equity, what would i do if i'm wholesaling?

QUESTION HOW WOULD A LEASE OPTION MAKE SENSE IF THE SELLER OF THE PROPERTY OWES 300K BUT THE HOUSE IS WORTH LIKE 280K? WOULD THIS BE A GOOD DEAL FOR A LEASE OPTION?

Hey guys just searching around reading diffrent post and decided to speak to you, hope you don't mind. I have recently purchased Dean's books, and even though I am is a situation to purchase my first property I'm dedicated to finishing both of the books, taking detail notes in the process. I must say that all ready I am please with what I have read. What I am thinking and please feel free to set me straight. Looking at purchasing my first property definetly at a discounted rate considering the down market, doing a refurbish hopefully minimal, or none depending on condition, and then renting property and gaining a positive cash flow monthly, and finally selling property when market is stable. I know that this option is just one of many in the ways of making profits in realestate, but I desperately want this to work for me and it will that's how motivated I am. Just want to get as much feedback from people like yourself who have been in the trenchs, to help me not to make costly mistakes. Thanks for any advice that you can share with me.

Huggins95

I didn't see an answer to: is there a technique to contract/assign a property that is updside down and put up for sale? Since there are so many in this situation these days, there's an abundance of inventory...

Most investors waste time on these properties thinking banks will short sale any property. The ideal short sale candidate is a property in foreclosure & has a 1st mortgage balance of 80% or less than market value of the property or has a 2nd mortgage 20% or more of the property value.

In your example the property has no equity. The lease Option is dependent upon the owner continuing to make the payments. If there isn't any equity it's possible that the owner might walk and leaving you with a lease option on a property that may go into foreclosure. If you wanted the house bad enought you shoud buy it on contract and get the owner off the title. However, why would you buy a house with no equity. You'll just have to wait before you are in a break even situation. It would be better to get involved with a property that you can buy below FMV. The only thing that makes sence on this property is to see if a short sale is possible.

Jason,
"Tagging Real Estate Deals from the Desert to the Coast". So how would you tag one in Northern California? Say Hollister area?
Josh

Write an offer! Lock up the property and get to
work on the other side of it.

That's just my opinion on it.
What's your thoughts?

Right now about 1/3 of all property in the US are "under water" owing more than the homes current value. Not all of these are becing offered as a short sale, however you can always talk to the owner and tell them you would like to submit a "short sale offer". Just because the lender may not be offering a short sale doesn't mean they wouldn't accept one.

A short sale would be the best option. Like jeff said above me is correct. Alot of people get hung up on how long a short sale might take. It shouldnt matter because you should be seeking and working other deals at the same time. The short sale should be a surprise when all of a sudden you get an acceptance. You should have done other deals in the mena time. Heck get as many short sales going at a time, before you know it you'd be closing 1or 2 every month.Along with your other deals. Negative equity doesnot mean walk away it means use another strategy.

A short sale would be the best option. Like jeff said above me is correct. Alot of people get hung up on how long a short sale might take. It shouldnt matter because you should be seeking and working other deals at the same time. The short sale should be a surprise when all of a sudden you get an acceptance. You should have done other deals in the mena time. Heck get as many short sales going at a time, before you know it you'd be closing 1or 2 every month.Along with your other deals. Negative equity doesnot mean walk away it means use another strategy.

Two things to consider, if the bank is willing to sell the property for less than what is owed, that will create equity out of thin air and create an environment where you can make money through flipping the contract, the houseor use it as a rental. What if the bank won't go down low enough though??? How abou looking at other poperties in the area. If this one isn't too far under,consider lease optioning the home from the owner and sandwich lease optioning it to someone else while you wait til the property goes back up in value. Just a thought.

I have a very touching situation in that one of my daughters decided to short sale before I knew what she was doing. It's now with a relative realtor. I don't want to start a family fewd, but at the same time I want to do something to help my daughter. The lender has not had time to accept or reject a short sale,and there has been no price set by the lender. My dauther cannot continue to make mortgage payments. Going through a realtor may take months.
What is my best approach since I would not be dealing directly with my daughter? Anyone have an experienced solution?

Marvin:
most banks (we're talking about the first bank and lienholder, not the 2nd in line) won't even SET a price until a written offer has been submitted. How do you then pre-set (if you will)a price to squeeze the very first offer from a potential buyer?

If the property underwater is under in both the 1st and 2nd loans, meaning the 2nd bank is going to recoup nothing and the value of the property is worth less than what she owes on the 1st, then:

A. find out what a true comp is (check out Zillow.com as a starting point) or what other similar properties are on the market for; and

B. use a percentage (say 20%) of what a current comp is going for (say $100K), and then market the property for, in this instance $80k.

Seek an offer for $80K and then have that buyer's agent submit to your daughter's agent so she can send to bank, but be prepared to wait.

Of course this math only works to a certain percentage point. However, you need to get an offer to the bank to reject it so it will counter, and then you will know what the bank is supposed to accept offers on.

One more caveat: sometimes a bank will simply reject a short sale offer, and not counter-offer at all, leaving your daughter and her agent to wonder what the bank will actually accept.

Trick is to have your daughter's agent stay on top of a submitted short sale offer, and keep pestering the bank or it winds up in a big pile on someone's desk and/or neverneverland.

Good luck

I am currently working with Matt's 25-1 program. The relator has asked for proof of funds. With REO and short sales you need to provide proof of funds. I have never heard of needing proof of funds for a private sale. Am I wrong?
Thanks,
JB

glad you asked I was wondering the same thing cause I have been looking at REOs and they say need proof of funds and I dont have it.

I have a situation where I just started reading Deans book a couple weeks ago but a family member just came to me yesterday with some bad news on their part. My cousin and his mom bought a house near Victorville in California but was unable to make the payments on the home and recieved a letter stating they had to be out by the end of the month. From what I been reading it's either in a "short sale position or lease option" to help them, right? I did a check on the FMV AND WHAT THEY OWE:

3br/2ba
FMV= $79,000
They owe= $150,000
Monthly pmt= $1200.00
Past due pmts= $6,000

His mother has already moved out the property while he still there. The property value dropped dramatically and the area is not that great but there is a lot of pre-forclosing in the area which are causing a lot of people to move out of the area which is bringing out the so called "troublemakers" out of the area which can help re-structure the value. The houses are mostly built in 2004. His mother lives right up the street from me now! What actions can/or should I take? I wanna begin taking action!!! Please help!

The past due payments would have to be caught up, I believe, in order to do a lease option. With other properties going into foreclosure around it, leasing may be tough. Its already 5 months past due so the bank may be willing to do a short sale. Submit an offer less than the FMV and see where the bank stands. You may save your family from foreclosure and put some money in yourr pocket at the same time. Remember to make a list of things that need to be fixed on the property so you can show the bank that its not a FMV home or just lowball it and see if the bank counter offers.

~Thanks for your feedback! First off, let me get this straight! Once I contact the owner I would have to have her contact her lender first to give the lender the ok to speak with me correct? And would she have to request for a short sale package or would I? And once I recieve the package what do I do with it? Who would I be able to go to for help in what to look for and sign from the package?
~ Lets say bank counter offers and I accept. Can you lock a contract with the lender and assign the deal to someone else? Or would I be the one to have to put up the cash for short sale and pay lender directly? I just want to know if I can help in any way possible... feedback from anyone is appreciated.

Do what you can to talk to the lender, sometimes their not so quick to respond so stay in contact with them. Take your shortsale packet to an experienced realtor in shortsales. Ask the realtor how many they have handled. You don't want to be the "trial and error." Realtors that aren't good at these can actually make things worse and drag it out until it is foreclosed on. Assignments with REO's are tougher but not impossible, unfortunately I am not experienced with it to give you advice on that. Many people on here do them so maybe try a new post under whats new or check under the faq's.