"Subject-to" Deal. Looking for advice.

Do they have the property listed, or have they tried to have the property listed? If they are in pre-foreclosure and have $100K in equity, I wouldn't think that they would have a problem selling the property through traditional channels.

If selling it through an agent is not an option, then what are their choices for moving the property? If they don't sell it, will it go through the foreclosure process? If they are going to get foreclosed on, then you should be able to negotiate the terms down.

If rents are going for $2200, and your expenses are running about $1500, then you should be able to charge a lease-purchase buyer around $1800 easy. You can charge whatever you think you can get for a non-refundable option payment, and then market the selling price at about $20-$30K over your purchase price.

You can have a potential lease-purchase buyer fill out a loan approval application through a mortgage broker to see if they have a good chance to qualify for a refi in about 2-3 years.

Hope some of this helps,

I am a little confused on this whole thing. The ARV on the house is $300K and the lots sell for $15K which comes to $315K, so why would you even consider $335K? Your goal as an investor is to get a deal where you are going to be able to MAKE money.

How much are they behind in their pmts? How are they figuring that deficit into all of this, since they are wanting more than everything is even worth?

At this point this is not a deal for you. With what we are looking at so far, depending on how much behind they are on pmts, I would not even consider the lot and offer to take over the house for the balance owed on the loan. And at the end of the L/O term, you would be able to purchase the house for the balance owed.That way they will save having a repo on their credit and you will be able to be building further equity.

Then you can either do a quick wholesale on the house getting enough to pay off the deficit and get a small profit for yourself or do a L/O, getting an option fee of about $15K, with which you could pay off the deficit and have some for yourself.

If rents are going for approx $2200, you could probably get around $2400 for a monthly pmt and offer a $200/month rent credit as long as the pmts are made on time. That way you will have good monthly cash flow and a great profit when the T/B pulls the trigger.

Good luck!

Karen

Michael, how long could you be an investor if you went around paying $335k for properties worth $315k? These sellers are going to be shocked back to reality. Where are they in the foreclosure timeline? How much are the back payments that need to be made up. Since they are in foreclosure, you have to deal with them differently than a regular seller and you won't find those forms on this site. You can't use a standard purchase and sale agreement. Since they are in foreclosure you will be using what is known as an equity purchase agreement. Florida, like California, specifies certain verbage, and even the type size and where it must appear in the contract. You have to give the buyer a certain period of time to cancel the transaction, etc. Banks used to have the power, but with the recent wave of foreclosures, the law has drifted to the side of protecting the consumer in distress from being taken unconscienable advantage of.

"The doctrine of unconscionable bargains seems to be limited in three ways. The first is that the bargain must be oppressive to the complainant in overall terms. The second that it may only apply when the complainant was suffering from certain types of bargaining weakness. And the third, that the other party must have acted unconscionably in the sense of having taken advantage of the complainant."

Here is a link that will give you some more info in dealing with a foreclosure in Florida...
https://homemortgagelaw.com/florida-foreclosure-fraud-protection-law.htm...

Of course, terms on L/O deals can be set up any way that both parties agree to. Every step that I use is set up in a particular way to have the T/B set up for success in every way possible.

I charge the initial 5% option fee because then they have enough down to qualify for FHA or there are some conventional loans they may be able to qualify for with 5% down. Many people are not good savers, so I have the rent credits in place so that their closing costs will be able to be covered or they can be used as additional down pmt. I would hate for a deal to fall through because they did not have the $$ for closing. The rent credits, just like the option fee, do not have to be held aside until the closing, it is merely a paper credit and $$ that you can spend however you want. It will merely show on the closing docs. There is no reason for it to "muddy" the waters. You should have a copy of every payment in their file and that will show evidence of the pmts.

Personally, I prefer to do Co-op or Wholesale L/O--you get in, get your fee, assign the deal and you are out, but with this much equity, if you are doing L/O, the only way you would want to go is sandwich.

Karen

Rent credits are basically like robbing Peter to pay Paul, it's just an advance out of your profit on the back end. The best use of the rent credit is to insure timely payment by the T/B. If you are giving them a $200 rent credit, they receive the credit if they pay by the first. If they are late with the payment, they don't get the credit, so it amounts to a $200 late fee if they are only a day late.

First, Thank you so much. Your responses provide the confidence and the necessary tools to move forward.

I now have a potential T/B. I explained that I would need 25K down and at least $2,200 / month. I realize, due to my inexperience, I am using the "shoot first and aim later" method because I haven't had the seller sign anything. I believe I need to wrap up the the deal with the appropriate forms. I saw the forms on the link under "Student Resources". Any insight on the correct forms to use for the sandwich lease would be helpful. If I get the right forms, I have the outside chance of making money by mistake.

I could see where the use of rent credits could be beneficial both to myself and the T/B. An incentive for timely payments. The perception for the T/B that they have a great deal and an additional tool for the T/B at close.

In addition, more people are calling. Anyone have a 3/2 in South Tampa for a T/B that can pay $1,000 / month? Small down payment but, he's willing to take on repairs. He also wants me to take over his existing property.

AHHHH! HELLPP!

Thanks,
Michael

Reading your post I saw HOA fee. Have you checked with them on rules and regulations as far as putting a new owner in the prop. HOA's might have some sticky rules. I would talk with the seller and get his input about HOA rules. Just a thought to consider...Jan

I would also look at the hoA fee like jan said, By the way What signs are you guys using to get the T/B.

Up to this point, I've been using virtual marketing - mostly Craigslist, however; I believe I am missing opportunities without the bandit signs. This week I'll be "ramping up" my marketing by using yellow bandit signs with black, handwritten letters.

Thank you, I did not realize that an HOA could throw a wrench into the works. I will investigate further.

Michael,
if you are doing a subject to- you will be taking over their current loan (subject to the existing financing) you cant pay the retail price-You simply take over the payments. If they want a down payment- than lock in the property and find a buyer-You should already be placing adds in the neighborhood where the house is. You can also partner with another investor who may have lease/option tenants or buyers ready and waiting. This may also be a wholesale deal if the equity is $100,000! If rents are truly $2200.00 than you should be able to get that amount on a lease/option. Negotiate the lowest down payment possible. If they are behind on payments than you will probably need to catch up the payments so the loan is current. If they are going to loose the house,YOU are helping them from foreclosure. You mentioned re-instating the loan... Did the house already foreclose and in redemption? If so, they may need to pay the loan off unless they can negotiate with the lender.
Go get it brother!
John W.