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Hello to All CFD members. Hope all is well with you and your families and business is good!
I have a friend in Connecticut that has got himself into a pickle and is now “house rich and cash-poor” (been there too many times myself). I’m asking for opinions from fellow members as to possible alternatives for him, he needs his money out very soon to continue with other projects. I’ve already shared my thoughts with him, but I’d like to hear other opinions as well if you would be so kind.
The following is the letter he wrote to me explaining…
Thank you all in advance for taking the time….Angel,
I bought a 2 family (duplex) investment house for $48,000 and renovated the property spending about another $50,000. I now have a approx about $100,000 in it and it’s worth about $150,000. I have a number of people calling for the property however they have bad credit, some can put together some money for a down payment to fit in with FHA criteria of 3.5% which is not a whole lot but they have stable jobs working for hospitals or the local universities.
I also have a pastor who is willing to purchase the property and put down $35,000 for the purchase of the property and is looking for owner financing. He has bad credit and no income which does not help him getting a mortgage. His plan of action is to live in one unit and rent out the 2nd floor to government funded individuals on a per bed basis and potentially make a significant income doing that.
My problem is that I have a lot of interest in the property but I’m having trouble finding someone that will qualify for conventional or FHA financing so I can my money out for other projects.
I’m not sure what my options are as a lot of the old ways of thinking are obsolete.
Let me know if you need more info?
Thanks Angel,
NicoHI Angel,
The worst mistake that investors make is to think of their properties as a ATM machine that you can get money out of. That is exactly what has gotten so many people in serious financial trouble.
He’s got two choices, sell or hang on.
Plan A – only use is he wants to sell
Selling the property will be difficult. If he wants to sell, he needs to call every single mortgage broker in the area to see who they have who is approved for financing NOW that wants a duplex.
He should also get in touch with a real estate agent who can pull up recent investor sales in the area. If another investor bought, they may want this property too. However… if it’s a smart investor, they will not pay retail so he can’t expect a full market value price.
Plan B – probably fastest and easiest
Bring in a private lender who will pay $50,000 for an option for 50% of the upside. They split cash flow and split equity and split maintenance costs. Rent out the property and plan to hang on for at least 5-10 years.
the best place to find this person is to find someone who is in the middle of a 1031 exchange and needs a place to park money asap. You can find all 1031 companies at http://www.1031.org or call Jack Shea’s office to see if they have someone.
Plan C – more work but best strategy
Get the place rented as fast as possible. Plan to hang on for at least a year so he can take advantage of long term capital gains when, if he sells later.
Then do some OTHER option deals and wholesale flips to generate cash fast. I just posted motivated seller leads in the Seller Lead section of the forum. With a little work, he could make $50,000 in a few months and get his money that way… all while keeping the cash flow and the equity in his other property.
The absolute worst thing he can do it to refinance the property. It would be a HUGE mistake. His cash flow would go down and it would make it much harder to sell later. A $150k price today could easily be a $100k price next year… in the short term he would “get his money out” but in the long term, he could be upside down and lose the house and his credit too.
My 2 cents…
Jackie
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