How To Structure This Deal

[meverett24]

Any information would be helpful.  Ok here is the situation.  There is a guy who has a duplex (2 bedroom 1 bath and 1 bedroom 1 bath) his mortgage is $489.00 per month at current time he gets $750.00 from his tenants.  He also has a 4 unit (2 bedroom 1 bath) mortgage $1400.00 per month.  This 4 unit is HUD eligible when the tenants were paying he was getting between $425-475.00 per month.  

He lost his job and the properties are in forclosure.  The duplex we have time on however the 4 unit is going on June 7th.  He wants no money out of the deal he just wants out of the property. He is very motivated to sell.  I need to know how to get this property.  I have contacted CitiFinancial where he has a 2nd mortgage he needs $648.65 to catch his payment up.  The payoff is $7,848.77.  His first mortgage is with Chase and they will not give any payoff over the phone we have to fax in a writtten authorization for them to release information to me.  Does anyone have a recommended letter?

So I guess I can move any further until I know what the payoff is for his first mortgage is that correct?  He thinks the payoff is $166,000.00  I have pulled the public record and the Just Market Value of the 4 Unit is $109,000.00 although it is probably higher than that.

I just need help knowing how to make this deal work.
What should my next steps be?

[meverett24]

OK I have since gotten a letter of authorization.  I have also gotten Chase to agree to fax the letter by the close of business on tomorrow.  The pay off for his first mortgage is $13,050.00 to re-instate his loan.  Total arrears for this property $13,698.00. I have ran comps on this property and looks like  the value is $166,000.00.  I am trying to assign it for $185,000.00. Does this sound reasonable consisderning the cash flow could be on the low end $1700.00 per  month possible mortgage $1400.00 per month $300.00 cash flow on low end.

[tedjr]

Howdy Meverett24:

You said the comps are $166,000 and you want to sell for $185,000. Isnt that more than the property is worth. How can the end buyer get a loan. The bank will only loan $166,000 if they loqn 100%.

Also your payoff info is hard to figure. What is the total debt on the property? Sounds like it could be close to the value?

Are you going to put up the funds to cure the default or is the new owner? You will really have to work fast to get it done when you find a buyer.

LOL

[meverett24]

I am waiting on the pay off.  I am hopeful that whoever gets it will see the cash flow advantage.  Properties all the time sell for more than they are worth.  I do understand though that unless someone has money and does not need to get financing this would not be such a great deal.  I'd like to hold on to it but of course I don't have time to get conventional financing and hard money does not work for this deal.

[mesha]

your earlier post suggest that the payoff is 166k then you say that the value is 166k. i'm confused. looks like your going to try to sell it at retail price after it is reinstated? as you know most investors look for wholesale deals but if the cah flow is good it may work in your favor

[WilsonTaylor]

meverett24,

When you were calculating your "rough" figures, you did not allow anything for vacancy, taxes, insurance or repairs.  Just allowing a 10 percent vacancy rate cuts your cash flow in half.  Insurance will cost you another 200+ per month.  That leaves you with an alligator in your pocket before you get to taxes and repairs.

If you are going to try to sell this to another investor, you had best plan on holding on to it for a while until you can find someone that is really green.

Wilson

[Roger J]

Give this idea up, sit back and rethink your strategy for the next deal.  You might also use that time to read up on some investing how to's.

You're throwing out numbers all over the place, but very few of them make sense, or at least, enough sense for anybody else to really help you.

You say that comps place the value of the property around $165K but you're planning on assigning the deal to another investor for a total purchase price of $185K, and you're reasoning is that "Properties all the time sell for more than they are worth."
Well, there a few problems with that.  One, if you are having to deal with the bank at all (and you are), they will NOT allow you to assign the deal.  You're going to have to close on the property.  Of course, the big one is number two.  That being your flawed reasoning.  Properties DO NOT usually sell for more than they are worth, and especially not ALL THE TIME.  Add to that, if you are planning on selling to an investor, they are going to KNOW the true value of the property, AND they are going to expect a DISCOUNT from that value, not an inflated idea of price.

Heck, even an old-fashioned "bank on appreciation" landlord wouldn't touch this deal, because as mentioned, once you figure in ALL of the costs, the "deal" begins to bite you in your wallet pretty hard.

If you're still interested in it personally, you could still get conventional financing.  Most lenders do not want to foreclose.  IF someone presents a true offer on the property (with a preapproval letter), in most cases, they will postpone the foreclosure date.

Even if they wouldn't for some reason, HML/private lending is still an option.  If this is still a deal to you, borrow the money short-term (30-60-90 days), just until you can refinance conventionally.


Roger

[meverett24]

Thanks Roger for your honesty and I appreciate it.  However in DC where I live properties every day are selling for more than 10% of what they are worth.  I do understand that every state is different but in this market houses are selling for more than they are worth.  I do agree that giving this deal up makes sense because of the short notice and the time that I have to structure the deal.  I am working on some other deals in the meantime.

[Roger J]

meverett24,

Houses do NOT routinely sell for more than they are worth.  Exceptions being possibly the rare buyer who has more money than brains and buys the property they want regardless of purchase price, OR in the instance where the seller has intentionally and deceivingly inflated the purchase price, usually with the help of a lender and/or appraiser, to "pad" the sell (ie FRAUD).

You're saying that buyers are paying 10% more than what a property is worth in your market.  How are you determining that?  Do the buyers have it appraised and still pay 10% more than the appraisal?  If so, they're coming out of their own pocket for the expense because no lender that I know of is going to finance more than the lesser of appraised value or purchase price.

What I'm trying to say is that properties are, in essense, worth what someone is willing to pay for them.  Just to be clear, by "someone" I mean a person that is reasonably motivated to buy, that has accurate information about the property and value (no fraud taking place).

Short notice is no reason to NOT do a deal.  If it's a deal, then the money to do it can be found.  From what you posted, this doesn't really sound like a deal, but as I said before, I really can't determine that because you've thrown around a lot of numbers, but not given them in a way that will help anyone really determine what is going on.

Hope it helps,

Roger

[RedRoom1]

Ok it seams we have figured out how and why NOT to structure this pig, but if you still want it you could go for a long shot, and get a short sell approval from chase for (hopefully much) less than market value.

[JBJR]

I am not an expert by any means, but I would be extra careful about the rents.  Even if the current owner did lose his job, the rents he is stating more than cover the mortgages.  Make sure the tenants are not more of a problem...............credit checks........