[Jeff Bowman]

Jeff Bowman

I figure I’d throw this out to the group. There is a seller who has two mortgages on a property and is being foreclosed on the 2nd which is for $50K.

The first is a terrible ARM with a value of $140K at 8% and a clause that gives lender the right to hike it to 15%.

ARV for properties in the area is $250K +/-.

I have not seen the property yet but I’m assuming it will need some work to get it in a ready to sell condition which tells me the owners have very little real equity.

The sellers are looking for a “loan” of $50K to pay off the 2nd and then move to a neighboring state in 3-5 years. Since it looks like they never made a payment on the 2nd, I won’t make the loan but did see a possible option opportunity.

Problem:

I thought there might be a possible option deal here by paying off the second but my concern is how do you set the option price being that we are in a red-hot real estate market. I could see prices collapsing in this area.

Anyone have suggestions on how this deal could work other than selling it right now?

[Mike Weiss]

Mike Weiss

Jeff,

Depending on how aggressive you want to be, I’d look into buying the second at a discount and having a conversation with the current owner. This gives you leverage.

If you could get the second for about $20k, you’d owe $140k on a house worth approx. $250k and it may need some work to put back on the market if the current owner is not willing to give you a deed in lieu or ??

When you own the second (at a discount) you could have your own “short-sale”.
And in a hot market, it would sell quickly.

You’d get the difference between the amount owed on the second ($50k) and what you paid for it.
The owner would get the equity above the loans.

Don’t have $20k on you, I do.
Or someone else close to you.

You don’t want to make a loan to a homeowner who’s shown they don’t make their payments. You don’t want to make loans to homeowners anyway, its a trap. Ask me how I know.

You could even split the deal with the current owner.

Depending on the rehab costs, you have a nice deal here.

Deal math:
ARV: $250k
Equity: Currently $250k – $140k -$50k = $60k
Possible equity after restructure: $250k – $140k = $110k after buying the second for $20k.

Owning a second mortgage with lots of equity above you gives you lots of options.

Hope this helps,

Mike