OfflineI'm new to the whole idea of investing, but am willing to give it a try. I'm currently looking at a home right now in Woodbury, Mn. Great location, great school system, nice place. The current owner wants to sell it and move to Florida. Here's the scenario: He owes $250,000 on it, its FMV is also $250,000. The owner has a ARM on the property. He calls me at least 2 times a week trying to get me to take it off his hands. From an investors standpoint, it does not seem like it makes sense to look any further w/ the property cause he owes what its worth. Am I missing the boat here??? Is there anything I can do to possibly make money off the property?? He has NOT listed it yet.
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How is the market in MN, regarding declining property values. That is something you may want to consider first. Not because the seller wants it off his hand, you should take on his burden. What is the lowest price he would like to offer. In a case like that if the house is in great condition and you could purchase and rent it out to gain a reasonably amount of cash flow, that's another way to look at it. It may or may not be a good option to flip if there is little or no equity. You have to weigh the different options you have an make the best decision. If your gut says, leave it alone, follow your gut. All the best to you in your new career of real estate investing and a hearty welcome to the DG family. God Bless.
Sandra
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Jeremy and I just did a FSBO deal but we bought the house under market, so I am thinking that there is not a lot of room to move here at all. Unless this seller can take a loss and make it up on his own, if you are following me. Let me ask you this. what are you planning to do with the property? It would be hard to buy and hold, meaning to buy it and rent it out or live in it. By my calculations, it would cost you about $1350.00 just for your mortg and int. and then add on taxes and ins. These are ballpark, but unless you have a big downpayment, where are you going to go with this? It is your call, and this seller seems motivated big time, I would walk away, unless there is something you have planned for it. Keep me in the loop, I would love to hear how this ends up. Good Luck.....Jan
Sandra and Jan,
You guys have no idea how much I value your input and suggestions. I was just over at the property and did a walk through. Its a very nice piece of property inside and out. With the way his financing is set up (ARM) and the remaining amount on the mortgage, as well as the FMV, I think it would be a wise move to walk away from this one. Once again, thanx for all your help so far.
Jay
One other quick comment: His mortgage payment is $1377.00 per month Property values in that area seem to have leveled off. But my gut is telling me to leave it alone. I think there are better deals to be had out there.
Congratulations on taking action and running the numbers on this deal. Sometimes the information and the education you gather while reviewing deals can be more valuable than the deal itself. I remember hearing an investor state that "some of the best deals they have done, were the deals they decided not to do." Thus, keep up the good work and the deals will come. Good luck with real estate investing. Believe and Achieve!
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You can suggest to the owner that he can do a loan modification or a short sale.
Like Indiana Joe said, "Sometimes the information and education you gather while reviewing deals can be more valuable than the deal itself."
why couldn't jay birddog/assign it to some one who does short sales and make a couple of thousand assignment fee. i'm just asking i'm new.
This is what works for me. Work it out with the buyer. BE HONEST, let the buyer know that you have to make a profit for a deal to work between you. You have family, or whatever, and he'll understand. Ask him to explain his situation to him. Then BE QUIET and LISTEN. He'll give you a lot of clues of what direction to take the conversation.
And say, ok, you want 250K for this property. (Does it need any work at all or updating?). If it does; say something like he has a beautiful house, but today's buyer's have different tastes in colors (if outdated) and you MAY need to fix that to make a profit. If there're any other items that may need to be fixed or replaced, let him know in a nice way (today's buyer...) that you MAY (don't say you will, but MAY) need to fix the property in those areas.
Then let him know that if a regular retail buyer were to come along, does he think they would give him his full asking price? If he says no, then ask what he thinks a buyer would offer him for his home. Then ask him if he considered that a regular retail buyer will require an inspection and for him to fix stuff for them. After that conversation, make sure to mention that MANY retail buyers in this market expect the seller to pay some of their closing costs. Then talk about termite inspections, and if it has a basement, that most basements can't be guaranteed not to have dampness, but if there is any, that will have to be rectified somehow.
All the while you are doing this, let HIM write down all these costs and numbers and figure out the math with him. SEEING it and WRITING it should turn on a little light bulb.
Ask him what he will do if he doesn't sell by (such and such time that he's told you he needs to sell by). If he says he will list it with a realtor, say ok. well, here's how that works. A realtor will take 5-8% commission off of the price of your property. So, lets put that on the paper. Then, remind him that getting an offer doesn't necessarily mean it will close. The buyer will have to qualify for a loan, and require repairs and all that good stuff and all the factors that could happen with another buyer.
THEN, ask him if he will have to leave the property vacant at all, and let him know casually, like WOW, did you know that after 30 days, the insurance will require him to have a different insurance policy for a vacant house which is MUCH more expensive than regular insurance? Then remind him that vacant homes are often the target of vandalism and you wouldn't want anything like that happen to him.
After he sees all the numbers on paper and has a better idea of what to really expect, he may be a little more negotiable.
If his price is off, make sure to bring comps in the SAME neighborhood, about the SAME size in the last 1-3 months only; and if any are for sale cheaper, make sure to bring those along as well; with pics if you can get any off the internet.
Ask him if monthly payment would benefit him. Ask him if he needs cash at closing for anything, or if you could work something out to just give him monthly payment? Plant the seed. He'd be keeping that loan and you'd fix it up and flip it on a lease option or an outright sale.
And THEN, work out the details. Whether you do an and/or assigns or you decide to try to do a sandwich lease, or a deal where you don't have to pay for x amount of months so you can do any repairs that MAY need to be done, and then find another person to lease option it to; or whatever strategy you choose.
Good luck!