Option lower than owed amount

[hannadang]

Hi fellow REIN members,

A motivated seller contacted me to buy her townhouse. She owes $230K and willing to sell for cash for $220K. She said she can borrow 10K to pay down the rest of the mortgage. 5 other townhouses in the same complex sold for $250K in the last 6 or 12 months.

Should I take an option on this house and what`s my risk of not getting paid if I find a buyer at $225K?

Thanks,
Hanna

 

[Dan_Eisenhauer]

Hi Hanna;

One option is for you to buy with an Agreement FOR Sale, whereby you make the payments on the property for her. You can then market the property, either as some form of rental, or sell it to make your $25,000 profit, less closing costs.

If she is willing to borrow $10K to pay down the mortgage, make that part of the deal. She loses no money, other than her $10K, saves her credit rating, and unloads what is probably a worry to her. She will likely be very grateful to be out of the situation.

You on the other hand, end up with a $350K asset, with none of your own money in the deal, other than legal fees.

Now, I say all that without knowing anything about the mortgage. It/they may not be worth assuming. You will also need to check if there are judgments against her that could affect the deal described.

 

[hannadang]

Thanks Dan for your advice. I did offer AFS, but the seller doesn`t want anything to do with the townhouse and just want to sell it. There is a special assessment coming up of roughly $13K (the exact number has not been released).

My plan is to take an Option on the house and find a buyer. My worry is that if there`s no equity in the home, how do I get paid at closing?

Hanna

QUOTE (Dan_Eisenhauer @ Jul 13 2010, 11:30 AM) Hi Hanna;

One option is for you to buy with an Agreement FOR Sale, whereby you make the payments on the property for her. You can then market the property, either as some form of rental, or sell it to make your $25,000 profit, less closing costs.

If she is willing to borrow $10K to pay down the mortgage, make that part of the deal. She loses no money, other than her $10K, saves her credit rating, and unloads what is probably a worry to her. She will likely be very grateful to be out of the situation.

You on the other hand, end up with a $350K asset, with none of your own money in the deal, other than legal fees.

Now, I say all that without knowing anything about the mortgage. It/they may not be worth assuming. You will also need to check if there are judgments against her that could affect the deal described.

 

[RedlineBrett]

QUOTE (hannadang @ Jul 13 2010, 04:21 PM) Thanks Dan for your advice. I did offer AFS, but the seller doesn`t want anything to do with the townhouse and just want to sell it. There is a special assessment coming up of roughly $13K (the exact number has not been released).

My plan is to take an Option on the house and find a buyer. My worry is that if there`s no equity in the home, how do I get paid at closing?

Hanna

You`ll never make any money on this deal. Move on. If the seller can`t afford a 13k assessment they can`t afford to pay down their mortgage enough for you to make a profit.

 

[Sherilynn]

I agree with Brett. You will not find a buyer on the property unless you are willing to pay the $13k assessment. So you would need to sell the house for $233k (+ closing costs) just to break even, and that`s providing that you sell privately (no realtor fees) and the seller actually comes through with the extra $10k. It`s probably not worth your time.

Regards,
Sherilynn

 

[gwasser]

QUOTE (hannadang @ Jul 13 2010, 04:21 PM) Thanks Dan for your advice. I did offer AFS, but the seller doesn`t want anything to do with the townhouse and just want to sell it. There is a special assessment coming up of roughly $13K (the exact number has not been released).


Walk,

The earlier mentioned `fair market value` probably did not include the effect of the announcement of a 13K cashcall. Also, your real estate and legal fees are close to $13K not counting the risk with the underwater mortgage. So my math is 250K minus value detoriation due to cash call announcement minus cash call minus transaction costs minus mortgage risk =a lot less than 220K. So what is left of your perceived equity?

Also, a cashcall may indicate a poorly funded reserve fund - i.e. how many more cash calls?

 

[Dan_Eisenhauer]

Now that I know about the Special Assessment, I agree with the others.

It is time to find another property.

 

[GarthChapman]

Good luck trying to sell it with a 13k Special Assessment looming. There is no profit in this deal at anywhere near those figures.