What to do with little to no equity


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  • Hi,

    I received a call from a couple who bought a house in Mpls/St. Paul about 8 years ago because they thought they wanted to live here. Turns out they decided they don’t. They moved back about 2 hours south and rented out their place for the past 4 years.

    They have had trouble with the renters and they want to sell, but they owe about $260K which is about what the house is worth. I talked to them about a master lease and they were not thrilled about paying me 10% to run it.

    Rents in the area are somewhere between $1800-$2000 but their payments are $2400.

    I also talked to them about a CD or lease option and the wife seemed mildly interested. Her husband was not on the phone.

    Is this doable or worth walking away? I told them we may be able to do some sort of CD, tell the buyer the rent is $2200 but they receive rent credit for some of that extra payment.

    Any thoughts?

    Thanks.

    Hal

    The best thing to do for this deal is a Highest Bidder Sale for the down payment. Offer the home for sale with Seller Financing, No Bank Financing needed. You will have a ton of people who want it.

    Sell it for a fixed price of about $270k or $275k but the house will be sold to the person with the most down payment. You and the seller could split the down payment. Of they get $X and you get anything over that amount.

    By selling it with seller financing, you should be able to get the same mortgage payments. No cash flow but you will be able to get a chunk of the down payment.

    When you sell it, I suggest that you have the title company create a new note that wraps the underlying loan. The sellers get a deed of trust or mortgage to secure the note.

    You will need to get an Option to buy the house with seller financing, with a contingency clause that says you will do the marketing to find another buyer before closing. Then the seller and the new buyer will go to contract and you will be paid 50% of the down payment to RELEASE your contract.

    You should be able to get about $20,000 down.

    So a $10,000 payday on a house you do not own, did not buy, did not fix up, and did not get a loan on.

    How many of those do you want each month??

    A whole lot of them! Thanks Jackie. I will give it a shot.

    Make sure the first is a 30 year fixed rate note and mortgage. Don’t take their word on it look at the documents.

    Don Wede

    Sorry,
    Also you will want to have title work done to make sure their are not any other encumbrances.

    Don Wede

    That’s correct. You don’t want to deal with ARMs or balloon payments. Ask to see their mortgage. If they don’t have it, they can order a copy from their lender.

    Any title company can do a title search for you. Or look for ABSTRACT COMPANY in the yellow pages. they are often much cheaper for the dame results.

    Also make sure that you look at the promissory note that is associated with that mortgage. The mortgage will usually only tell you if it is fixed or adjustable rate, balloon or not and the term of the mortgage.

    Don Wede

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