requesting input on first deal

[branboles]

Need some help from the pros here.

I have run into a property (in Texas) that the owners have fallen behind on payments and want to get out of it.  They were leasing it to someone and got stiffed, causing them to get behind two mortgage payments.  They had a recent appraisal done (as part of trying to qualify to refinance) and the property came back at $102k.  They owe about $77k on their mortgage, with about $5k owed in missed payments and taxes.  It is currently empty and is in good shape in a nice neighborhood.

The owners stated that they don't have insurance, but since they have a mortgage, I am assuming that the mortage company is just tacking on the mandatory homeowners insurance.  I plan to do a sub2 with a two-year lease.  Their payments right now are $854, which does not include taxes or insurance (according to the owners).  I am hoping that the insurance is included in this payment and I can reduce it significantly by going and getting insurance outside of the mortgage company.  I should be able to get $1000/month lease, so I won't be getting all that much per month, but I should net $20k-25k at the end of a couple of years, since there is a fair amount of equity in the property.

I plan on more due diligence in the next couple of days, but I have to move quickly since the mortgage company (Washington Mutual) will take over on 11/15.  Is there anything else I should be aware of or look for?  I don't want to do this if I am missing something big that will bite me later.  Any input or suggestions would be appreciated.  Thanks!

Brandon

[tedjr]

Payment seems a bit high but it is probably an investor loan at 12 % or so. It could work out for you. Kind of hard to rent it may take a month or two or longer. What is the 11/15 date. It is not a foreclosure date. Foreclosures occur the first Tuesday of the month being the 4th this month. Sounds pretty good at least the equity part. If you can rent or lease purchase quickly sounds like a super deal to me.

Thank you,

Ted P. Stokely Jr
11505 Sw Oaks
Austin, Texas  78737

512-301-9171 home
512-587-6177 mobile

[branboles]

The 11/15 date is the date that the mortgage company will start the foreclosure process.

Another question: the owners asked me about refinancing.  They wanted to know if they could refinance their mortgage down the road, could they pocket the difference (according to them, they would qualify for about $2k-$3k more than they owe).  I thought that since my name would be on the deed instead of theirs, this would send up a red flag with the mortgage company.  Is this right?  If not, is there any other reason that the owners should not refinance?  They say that if they were caught up on their past due payments, they had a mortgage company tell them that would refinance them for 8% instead of the 13.4% that they are now.  This would be good for me because that would reduce their monthly payment by about $300.  Any input?  Thanks!

Brandon

[WilsonTaylor]

Your are correct that the current owners would not be able to refinance the mortgage after you buy the property (sub2).  The owners think that they could pull out 3k from the property after you clear up their less than perfect credit history, but they are not considering the closing costs on the refi (probablybetween 2 and 4k).  My suggestion to you would be to buy the property sub2, make payments for a few months, and then refinance the property yourself.  You will end up with more $$ into the property because of the costs of refinancing, but as you mentioned, the payment will be significantly less.  If you plan on holding the property for several years (or selling with a wrap-around or lease option), it makes sense to do so because difference in the payments would pay for the refi costs in a little over 1 year.

HTH,
Wilson