Cashflow rich, equity poor

[MKBridge]

Can I get some feedback on this one - I am supposed to give the gal an answer by the weekend.

2 bedroom townhouse/1.5 bath. ARV is about $175k repairs about $5000.

She wants what she owes on her line of credit - $170k. She paid $112k for the house but refinanced the line of credit to buy another house.

She pays interest only of $350/month plus $200 condo fees. The place is currently empty. I could do a rent to own for around $1100/month.

I would like to offer her around $160 - $165k on an agreement for sale. Can I do this with the LOC balance being 170k?

Any insights would be greatly appreciated. Is it worth doing an agreement for sale?

thanks kathi

 

[Thomas Beyer]

QUOTE (MKBridge @ Feb 26 2010, 01:45 PM) .. Can I do this with the LOC balance being 170k?
..
no

move onto next deal !

 

[gregbueckert]

It depends upon whether the line of credit is attached to that property. Generally a LOC is a personal financial vehicle that attaches to the individual, and follows that person. If the bank has not attached the property as security, it is free game. Even if it attached, it is still free game - it is the current owners problem if she has to sell below what is "owed". She sucked out the equity and applied it to another property - this does not
have anything to do with establishing market value of the subject property. There are a great deal of properties out there with financing greater than current value. That is the owners problem. She is trying to dictate a sale price with a substantial built in profit.

So the answer is, as always, you can offer what ever you want. But do you really want to offer at all? This situation, as described, is not a great deal for you. I do not know your market, but to make it a great deal the sale price should be substantially below
market. Unless there are huge plusses that I am missing, I would say move on. I have a feeling the owner will come back to you with a substantially better proposal. She has 2 houses and owes on both - have some patience.

 

[EdRenkema]

Kathi Thomas said it quicker, this person over leveraged themself and wants your help to deleverage.
The LOC is her personal problem, its about buying the property under market value or on terms.
Why not offer a partnership on the property if you can find an RTO tenant?

 

[JimWhitelaw]

If the seller is willing to sell to you on terms via an AFS, then yes, it`s worth doing. You can buy the property for the $170K w/ payments of $350/mo. Likely no fixed term on the loan if the entire balance is LOC (sounds like it), so you have lots of time to work with your tenant buyer. If you`re confident you can RTO @ 1100+ per month, then that looks like a decent deal, especially if you can turn around and pull out 6-10K from your buyer right away. If you want to build a bit of an equity buffer, you could structure your AFS so that the final payout to the seller is ONLY the balance on the LOC at time of payout and put a little extra onto the LOC each month. If the seller won`t accept terms (AFS) then I agree with the others, forget about it.