Buy house while still in bankruptcy - Posted by Level Infinity

Real Estate Investing Real Estate Law
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Posted by Chuck (AZ) on July 11, 2001 at 15:57:48:

Let me clarify…

We only rent the lots, the “tenants” own their own homes, and are responsible for it’s maintenance. The office hours are 9-3, closed holidays and weekends… and I do mean CLOSED.

We get about 3 calls a day. Usually they just want to chit-chat… tho I did spend about 10 minutes fixing a window for one lady this morning, and about the same amount of time helping a fellow put a air conditioner in yesterday. Keep in mind that I do this just because I’m a nice guy, I don’t have to… and they know it.

Both people offered me $5.00 for my trouble, which I refused. I call it “controlled management”… which means that I do what I want, when I want, if I want.

I like it.

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Buy house while still in bankruptcy - Posted by Level Infinity

Posted by Level Infinity on July 08, 2001 at 16:42:53:

I still have one year left on my Chapter 13. I saw a house for sale (325K) by a divorced mother of 2. I currently live in an apartment paying $1500/month and want to get into a home. Is it wishful thinking to try and get into this house? I don’t have all the financial info on the house yet. I don’t want to scare the owner with some outrageous offer. Can someone give me some ideas on how I should do this?

I’m eager to learn.

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Re: Buy house while still in bankruptcy - Posted by Ed Garcia

Posted by Ed Garcia on July 09, 2001 at 10:13:28:

Level Infinity,

I think even though Chuck got a little emotional on his post, he was trying to give you a wake up call so that you won’t continue to over extend yourself. If you don’t mind I’m going to address you as LI for Level Infinity, because as we both know it’s an AKA anyway. LI you mentioned that market rents for your apartment is $1500.

What I don’t know and am suspicious of is, I’m not sure that the house that you’re thinking of purchasing, will rent with a positive cash flow, with you buying it with NO money down. Especially a house in that price range.

LI remember, if my memory serves me correctly, you have to get permission from the court to purchase the house, and therefore have to justify the figures. You’ve also stated that you don’t even have any idea, what the numbers are going to be on the house? We don’t know your intentions of this purchase? Is it for resale? To buy as a rental? Or to purchase as an Owner Occupied?

LI, my suggestion in either event is for you to work this deal backwards. Figure out what kind of monthly payment you can afford and get approved by the court or whomever, and then structure your deal accordingly.

LI one more thing, if you want to do deals, here are nine ways you can do a deal with you situation.

Now before I give them to you, I want you to know that I’m really supportive of learning deal structuring. The first thing you need to do is, “investigate your deal” to know what I call (where the bodies lie) another words what is the seller’s main objectives or motivation. That allows you to have an idea of what approaches are going to be compatible with the sellers needs, allowing you to do the deal.

Here are the 9 ways that I’ve mentioned.

(1) PARTNERHIP: Find a 50/50 partner. It don’t have to be 50/50, it can be what ever you can negotiate. The partner don’t even have to have money, just good credit.

(2) FLIP: the best way to flip is to find a potential buyer first and then find a property. You can do this by running an ad on a property to see what kind of action you get. Once you have a potential qualified buyer, you’d be surprised how easy it is to find them a house.

(3) LEASE OPTION: Many times you can buy and sell with a lease option. We call this a “Sandwich Lease Option”. Jim, I’m not going to go into any great detail, you can find this information all over this forum.

(4) SELLER CARRY BACK: This is one of, if not my favorite ways to buy. Now the best way to utilize this system is to do a second seller carry back in order to give the seller some cash in the deal. If money doesn’t exchange hands, many times the seller doesn’t feel that they consummated a sale.

Example:

I find a house that has a small balance on the first. Lets say the house is worth a $100,000; the balance on the first mortgage is $30,000.

If I wanted to buy this house for lets say $80,000, I could ask the seller to carry back $15,000 and go to a hard money lender to borrow 65% of AMV (appraised market value) of which is $65,000 and the seller carrying $15,000 in second position, would ad up to $80,000. It would also give your seller $35,000 new cash, and $125.00 income on the $15,000 loan that they carried at 10% interest only, for 5 years.

(5) HARD MONEY: Hard money, is an equity loan made at approximately 65% LTV, based on the equity of the property only. Credit is not a consideration.

(6) HARD MONEY/SELLER CARRY BACK: Again, You can have the seller carry back a second and refinance the first, giving the seller some money. You can do variations of this system.

(7) SUB PRIME FINANCING: Many National lenders will provide financing at 70% with poor credit and won’t verify money down.

(8) SUB PRIME/ SELLER CARRY BACK: Again this combination can provide money to the seller, rather than ask them to carry the whole thing. Also there are local independent portfolio lenders that will lend as well as mortgage co’s and I always recommend seeking them out. National one’s would be Associates Finance, American General, Beneficial etc.

(9) CREAT YOUR OWN MORTGAGE: In our work shop, Terry Vaughan covers this, and shows you how to discount it and market it.

LI, I hope this post is helpful to you and will encourage you to stay with it. The only way you won’t be successful in this business, is when you stop trying.

Ed Garcia

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Re: Buy house while still in bankruptcy - Posted by Chuck (AZ)

Posted by Chuck (AZ) on July 08, 2001 at 18:26:08:

Let’s be TOTALLY honest here.

The REASON you filed Chapter 13, is because you were living BEYOND your means.

You CONTINUE to compound that mistake by paying $1500 a month to RENT an apartment.

You most likely don’t have ANY credit left, and with that kind of monthly rent payment, you PROBABLY don’t have any MONEY saved.

Now you want to buy a house for $325k. Yet another fast track to financial oblivion.

You said you were earn to learn… so, WHY haven’t you LEARNED from your previous mistakes?

Forget about buying a house, start looking to buy INCOME-PRODUCING property. Specifically, a duplex/tri-plex or a small apartment building. You should be able to get a really productive piece of property for the same money as this house will cost. You’ll probably have to get creative in the financing due to the Chapter 13, but it’s not impossible. Not only will you have another source of income (besides your job), you can live rent-free in one of the units.

Look at what YOU’VE payed for RENT - EVERY MONTH!! Doesn’t it make good financial sense to have that kind of money going INTO YOUR pocket? Figure up HOW MUCH you’ve spent on RENT to date… shocking isn’t it?

Consider this… if you’d lived in a $500/month apartment (within your means), and saved the other $1000, what would you savings look like right now? Would you have even had to file the Chapter 13?

Clue-up.

(Apoligies to the forum, but this really ticks me off).

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Re: Buy house while still in bankruptcy - Posted by Level Infinity

Posted by Level Infinity on July 09, 2001 at 14:08:58:

Ed and Chuck,

Thank you for your comments/help. I guess I was in that “wishful thinking” mode. I was hoping to move into the house using some sort of rent to own. For some reason if I’m going to rent I would rather rent a house than an apartment.

Where I live there are a lot of FSBO’s. Prices range from $120K to $1.5M. Some even list has motivated sellers and/or ones who will do some owner financing. I’ve read in the discussion group of investors purchasing fixer uppers and homes for $60K or what ever. I look in the newspaper and I don’t see anything lower than $100K. I would like to know if there are ways to purchase these homes using the same techniques. I can see myself definitely purchasing and reselling thses homes.

Is it legal to do a lease option and then renting it out to someone else or am I way off base with that?

I’m just trying to learn the right way.

LI

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Re: Buy house while still in bankruptcy - Posted by Chuck (AZ)

Posted by Chuck (AZ) on July 09, 2001 at 10:57:20:

Ed,

Your perception is correct. I’ve seen this type of behavior before (at least that’s what I viewed as), and it stuck a nerve in me.

By that I mean not learning from past mistakes… I’m sure you’d agree that those who fail to do so, are doomed to repeat them.

A number of years ago, I had to do a “13”… due a my wife’s illness. There simply wasn’t enough coming in to cover the outgo. Fortunately, I stumbled onto this site while researching lease-options, and saw a post very similar to the one that I made to LI.

It was a wake-up call.

I now own 2 mobile home parks in Arizona and am looking at a third… I live in one of them. So in effect, I’ve living rent free and other people are paying down my debt (purchase of the properties).

LI has a opportunity in front of him. If he proceeds from a new perspective, he can live well within his means and profit from it at the same time. I see no advantage to buying a $300k + home. I do see an advantage in buying a income-producing property that he can also live in. A small apartment building would do nicely and return far more than it would cost him.

Respects,

Chuck

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Re: Buy house while still in bankruptcy - Posted by Level Infinity

Posted by Level Infinity on July 08, 2001 at 20:12:00:

Chuck,

Thank you for that insight. However, $1500/month is the norm where I live and currently work. Considering it’s a 3 bedroom apt that’s roughly 1600 square feet. As far as learning from my mistakes yes I have. I just wanted to know if it was worth getting this house by paying the same amount that I’m paying for rent using some very creative financing.

Also, I currently still own my house that I just moved from and have tenants in it paying for the mortgage. That’s why I chose to do Ch 13 instead of Ch 7 so could save the house. That’s why I’m looking to get out of renting myself and getting into a house because I know the value of owning.

Again, all I’m asking is if there are some very creative ways and who would be willing to share.

(Apoligies to the forum for not giving enough info so that Chuck wouldn’t be ticked off).

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Re: Buy house while still in bankruptcy - Posted by Chuck (AZ)

Posted by Chuck (AZ) on July 09, 2001 at 17:35:41:

That would be called sub-leasing. You lease-option the house with the right to sub-lease it to someone else. But you’d have to have some pretty nice margins to make this worth the trouble (at least half again if not double). Given your comments on the local market it sounds rather iffy.

Allow me to beat a dead horse…

I still believe that you’d be wiser to persue a income-producing property that you can also live in, such as an apartment building. If you’d need to clear this investment with the court, it’d be far more likely accepted, and would demonstrate that you have learned the value of a dollar… as opposed to abusing it (their perspective).

You’d be living in effect rent-free. The tenants would be paying down the mortgage (with their rent checks), you’d be building long-term equity, get some nice tax bennies, and some SAVEABLE cash-flow to boot.

Note I said SAVEABLE not SPENDABLE. The goal is to then find another income-producing property, and repeat the process… while you continue to live off your paycheck (read - within your means).

Ultimately, you could have several such properties and be bringing in several times what you could make in year working for someone else.

As my friend Lonnie says… “when you have 50 people sending you $200 or more a month, you won’t need a job”.

Now just so you’ll know, I own 2 mobile home parks in Arizona (with a third on the table), all were/are creative financed deals. I’m 46 and I retired 3 years ago because I listened to someone on this website.

Are you listening now?

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Can I ask a stupid personal question? - Posted by mhj

Posted by mhj on July 11, 2001 at 10:40:08:

Do you get dozens of phone calls every day from tenants? I think that would drive me bonkers. Just curious. We used to breed Lab puppies and the phone calls made me give it up.
Buying a 300K house after filing BK is suicide. There will be no charge for my opinion, since nobody asked. LOL!

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Re: Buy house while still in bankruptcy - Posted by Chuck (AZ)

Posted by Chuck (AZ) on July 09, 2001 at 04:13:53:

Even given this “new information” (which you should have stated in your first post), my original advice of looking at income-producing property that you can also live in, is still sound.

Manage your money, don’t let it manage you.