Am I wasting time or is this possible? - Posted by Tony (CA)

Posted by Tony (CA) on July 09, 2001 at 23:14:20:

Ron,

Thanks. At this point I’m just trying to make sure I’m not missing some important angle that might simplify the process. Glad to hear you haven’t found some possibility in the story that I have overlooked.

Tony

Am I wasting time or is this possible? - Posted by Tony (CA)

Posted by Tony (CA) on July 09, 2001 at 14:43:40:

Unusual callback. Two months ago I first received a call on my ad. The sellers were sick of California. They wanted to move back to Houston. House was on the market with the wife’s step-father, a realtor, for $380,000. Turned out they were unemployed and hadn’t paid the mortgage in 4 months.

Next, I learned from the wife that the house was actually bought via a trust that was set up for these two kids. The step-father is the gardian of the trust. The tax records show a mortgage was taken on the house. I looked at the house. The house didn’t need much work, but they were being unrealistic about the price. Wouldn’t sell for less than $335,000. I figured that was about 88% FMV. Too skiny to flip.

Saturday I received another call from the wife. Their plans have changed. The husband is taking a job about an hour’s drive away and they want to move to a closer city. She tells me they put in new carpet and did some other renovation. Was I still interested? I explained that I only buy homes that I can resell and make a profit. She says they have some bills they wanted to pay off.

I thought it might make sense to lease option the house, so I asked how much they needed to move. She didn’t know and asked me to call her step-dad. I was thinking about having their trust carry the mortgage. I’m hoping to find out from the stepdad how much money is in their trust to determine if they could use their trust to buy a new home that’s closer to the husband’s new job and continue to finance this house that I’ll either lease option or just sell.

It would be helpful to me if you have any advice about ways to structure the financing. I’ve never done a lease-option and I’m wondering if I’m missing something. For example, the difference between their selling price (let’s suppose they will come down to $325,000) and the loan balance ($280,000) is $45,000. If I were to receive option consideration of 5%, $19,000, I’m still looking at investing $26,000. If the option is exercised, there’s a $36,000 backend. Only now am I $10,000 ahead, not to mention the monthly spread.

Seems awfully complex and not to profitable. Am I missing something?

Sunday night I received a third call from the wife. Two calls in two days. This fact is making me feel she is motivated and perhaps I can structure a deal that will be more profitable. On the other hand, the stepdad will need to be involved and will not have the same degree of motivation.

Tony

But what about. . . . - Posted by Earnest

Posted by Earnest on July 10, 2001 at 22:59:27:

Seems the owners want you to solve their (considerable!) problems take a large risk, and get almost nothing in return. I’m a newbie; just reading to learn. Whatcha think about this?

The owners are in a pickle, they’re four months payments behind and unless they do something there gonna lose thier equity AND have their credit ruined in a forclosure. OK, maybe they can find another buyer, but. . . .

Seems they can give up something in return for something. They can give up their equity in exchange for solving their cash flow and foreclosure problem. Why not offer to take the property Subject To, and make up the arrears. Maybe you’d give them a few bucks more cover their moving costs into a rental in the city they want to move too. Your deal would not be too skinny at all. You’d be in line for a sizeable profit if the FMV is what you say it is.

I don’t know enough about trusts, whether or not there is a way to take over the trust and benefit in that way or not. The simplest strategy, I guess, probably is to get completely away from the existing trust and take the property in a new land trust.

Re: Am I wasting time or is this possible? - Posted by Ronald * Starr

Posted by Ronald * Starr on July 09, 2001 at 21:57:03:

Tony-----

Couldn’t you just find a simple fixer upper? Or do you like complex deals?

I think you have laid the issues out pretty clearly. I think you have analyzed it fine.

I think, from what you say, that the step-dad will definately need to be consulted. It sounds to me like he is the deciding factor here. But I could be wrong.

Perhaps your next step is to talk to the step-dad, either on the phone or in person. Not having seen you, I can’t tell which will be better for you. Look in the mirror to decide.

Good Investing******Ron Starr************

Re: But what about. . . . - Posted by Tony (CA)

Posted by Tony (CA) on July 11, 2001 at 14:05:37:

Taking risks and getting nothing in return? Of course not! The deal would have to be structured to minimize my risk and obtain the greatest reward.

I’m not talking about a land trust. This is an inheritance that has been put in trust. The sellers have been allowed to use the money to buy the house outright with the trust putting up the money. The sellers have an agreement with the trustee, the stepdad, to pay the trust back each month. So they really don’t have a foreclosure problem. The problem (I did just talk with the stepdad) is simply with needing to sell the house so that another house can be purchased.
They are willing to finance the sale to me as long as they obtain enough money to use as a down payment on a conventional loan. How much? Depends on the cost of the house they decide to buy and how big of a loan they can obtain.

I believe at this point the sellers have to decide to move and decide on a new house before they’ll seriously want to deal with selling.

Tony