OfflineI am a new investor (still reading the study material) and I'm trying to help a family member from under their property. He is not in short sale or foreclosure, but he does owe more than what the home is worth. What are my options for helping? I don't have cash so I'm currently looking for an investor to buy but if I sell it for less than what he owes how would that help? Please excuse the newbie question and thanks for any help.
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What does this family member want to do with this house? It sounds like payments are current, but the house has depreciated. Does this relative have good credit -> tried to refinance? How long have they been in this house? Where is this house located?
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It is so important to keep momentum going. Want to do more deals while there are so many great opportunities.Am very encouraged watching Dean!
The house is located in Fairfax, Va. He is current with his payments but he's looking to sell before his balloon payment kicks in. He has lived in the house for over 5 years and has just outgrown it. He has no interest in renting it out. He has good credit and is actively looking for a new place, but he needs to get rid of this one. Is there anything I can do?
At 5 years, my guess is that there's probably very little if any equity in the house as the majority of a mortgage payment in the early years of repayment goes towards interest. This does not take into account any changes in the local market.
Perhaps the best thing to do would be to consider a lease-option. (may require a refi to satisfy the balloon payment)
Hopefully some of the veterans will chime in.
Does this relative plan to live in the same area as the current home?
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I don't have a problem with the questions. It's teaching me the questions I need to ask moving forward with this business. Here's what I know:
- 1br/1ba Condo in Fairfax, VA
- He is current with his payments and currently lives in the area
- He was renting it out but the tenants moved out
- Owes right around $200K but comps in the area are listed/selling for $130k-$170K
- Not sure the exact date balloon payment kicks in but within the next couple months.
- Payment are going to be about triple (not sure the exact amount)
- Needs little to no work. (Cleaning and maybe paint)
- Granite counters and stainless steel appliances
- It was bought at the height of the market so has just depreciated over the years
- He is not interested in profit. Just trying to get out from under it at no cost
- He has great credit and is trying not to do anything that will harm that since he is actively looking for a new place
- I am not sure if he has tried to refinance but I will ask
I think that's everything but feel free to ask any other questions needed.
Can someone please explain the lease option and how it might help.
Lease Option aka L/O aka Lease with Option to Purchase aka (I'm sure there's a few more)
Basically a Lease is a rental for a specific amount of time. The option portion of this is that the tenant plans on buying the property after a certain amount of time, say 2-3 years in the future when the lease expires. The option consideration money is usually several thousand dollars up front to lock in a selling price of the property until the lease is up (unless the tenant wants to buy you out before the lease is up)
It's very similar to leasing a vehicle. You make payments on that car for a certain number of years. when that lease is up, you either give the car back or your purchase the car for a set price agreed upon at the time you got the car.
The Lease Option is a way for a tenant to test-drive a house that they might buy in the future. The tenant should be responsible for most repairs (as stated in the lease) just as the owner would be. The tenant might not qualify for a loan to purchase the property now, but may qualify by the time the Lease expires. The seller should be collecting above average rent during the term of the lease. The seller should have collected a nice sum of money up front for the option consideration money. The seller should have found a good tenant that won't trash the place because they intend to buy it.
This would only work (profitably) if the rental rates were higher than the mortgage. The relative would still have to refinance.
This might not be the best explanation (wiki has one on "lease option", but I'm starting to ramble...
The more thorough the question, the more thorough the answer.
Please fill out your profile with as much info as you're comfortable with.
Thanks.
Thanks everyone for the responses. It sounds like he's going to have to try and refinance before selling or moving onto the new property.
masseur07 - I'll PM you