Posted by JD on December 18, 2001 at 20:18:51:
I agree. A bird in the hand is worth two in the bush
Going out on a limb? - Posted by baldrepublican
Posted by baldrepublican on December 17, 2001 at 08:09:56:
Reposted to the correct group
I found a preforeclosure locally that had maybe $150,000 in equity. He had paid 360’s 3 yrs ago, put 30k into one of those home theatre/bar things in the basement and owes 250’s including what it will cost to reinstate. After going through the house last night I faxed him an offer for 350k subject to first with him holding a note for the difference over 10yrs. Belive it or not he called back and said it looks like we have a deal. I said a note not a mortgage. HEHEHE
Anyway, the payments are laddered to start with negative amortization for nearly the entire loan. IRR around 4%.
Should I have great big gonads and lease option this thing or just sell it for darn near full price and put his equity in my brokerage account? Of course I will make my payments to him. My good credit is important to me.
Someone let me know if I’m hanging myself or if this is a good idea because there is another home nearby with around 300k in equity whose owner want’s to talk.
My equity line for 100k is all lined up to keep my head above water with these until I can move them.
Re: Going out on a limb? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on December 17, 2001 at 22:11:14:
BaldRepublican---------------
(Are there any other kind?)
I both agree with you and with JT–IN in this.
I think that you have come up with a good way to overcome the objection of people selling the property at a steep discount from market value.
However, what JT–IN says is true, too. When there is a very motivated seller, you may be able to make a still better deal than you have summarized here. You do not mention whether you probed for a bigger discount before making the offer that you do. If so, and you couldn’t get a bite, I think that you are making a clever new offer. I like it. I congratulate you.
Maybe later you will be able to get him to discount the payoff of the note to get an early cash lumpsum payoff. Unfortunately, he probably won’t be able to see how your discounted offer is actually pretty good, compared to true value of what he will be holding. Oh well, don’t let that bother you.
Good Investing****************Ron Starr**************
Re: Going out on a limb? - Posted by JT - IN
Posted by JT - IN on December 17, 2001 at 08:51:30:
baldr:
I am having to make too many assumptions with your post. Please provide more info, as needed, in order to give a completely informed answer.
What is the FMV of this property, to an all cash buyer?
What was your basis for offering the $ 350K?
Explain your rationale for the neg amort @ 4% irr? Who will you pay, and how much?
How/who is going to cure the default on the 1st mtg? How much cash?
Sell outright or L/O; what is the mkt for a L/O on this price range of house, in your area?
Based on the following, we should have enuf info to give some better ideas.
From another balding republican…
JT - IN
Re: Going out on a limb? - Posted by baldrepublican
Posted by baldrepublican on December 18, 2001 at 24:47:39:
An email I got from an online appraisal service. 400k looks about right after some more research tonight. That equals a fast sale for 350k-360k. If I can get 360k the return I need to earn to pay him back drops to just over 3%. Money in the bank.
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Re: Going out on a limb? - Posted by baldrepublican
Posted by baldrepublican on December 17, 2001 at 11:01:04:
FMV, at least $375k judging by comps in hood
Basis for offering $350k. less than FMV on great terms.
Rationale, it is a note to seller, no mortgage offered, with low initial payments with payments growing over the years to to amort it only near the very end of loan. HIS IRR on note FROM ME is around 4%, only he can’t figure it out without a good calculator.
I can sell the house and put his equity in my account.
I will cure the default after taking possession. He owes 242k plus back payments and fees, 255k roughly.
L/O prices? Having a hard time finding rentals in the area. Using the info I’ve found on this site it would have to more than the cost of my payments of I just sell.
His wife is tired of having the sheriff come to the door serving them papers. SHE WANTS OUT BAD
THANKS all
baldrepublican
Re: Going out on a limb? - Posted by Ronald * Starr(in No CA)
Posted by Ronald * Starr(in No CA) on December 18, 2001 at 01:43:46:
BaldRepublican-------------
I still do not have the sense that you are personally knowledgeable about the value of properties where you are proposing to buy. I feel that you might want to tie up the property with an purchase contract. But one with an escape clause to end the agreement if you find information that the value is not as high as you felt.
I would suggest that you call about a half dozen agents who have listings in the area and try to get them to drive past the property and give you an indication of what they think the market value might be. If necessary, be prepared to pay them $20 to $30 dollars for their help.
Better would be for you to get all the information about sales in the area that you can find and study the properties and the sales prices.
Best would be for you to look at 100 houses that are for sale and wait until they sell and find out for what prices they sold. After that, you will know the values and not be guessing, as you are now. But, you can not do this without delaying the close of the property or foregoing it. Still, if you can’t do this before buying, you should do it afterward, if you plan to buy any more properties. You are running around blind now.
Good InvestingRon Starr***
Yep, out on a limb… - Posted by JT - IN
Posted by JT - IN on December 17, 2001 at 14:32:08:
BaldRepub:
Frankly, I fail to see where you are really nailing such a heck of a deal here. I can understand why the seller is calling you to say, you got a deal.
You are buying the property at maybe 25 or 30k below FMV, which amounts to about 93% of FMV. Thsi may be a deal in your book, but it isn’t in mine. I don’t really see that the terms are all that hot either, regardless of the 4% irr and neg amort. business.
Y0u will have to draw me a better picture of why this is such a great deal. Until then, I would cool off your six shooter a bit, before you get yourself into “too great a deal”.
Please enlighten me…
Frankly, on a deal with a motivated seller of this type and circumstance, I would be offering them about $ 10 or 20K to take a hike; nothing more. That would be what I call a good deal.
JT - IN
Re: Going out on a limb? - Posted by JD
Posted by JD on December 17, 2001 at 13:13:51:
I have never bought a property and tried to have the seller take back just a “note” for his equity. Sounds like a great financing arrangement if you can pull it off. But, don’t you think there is a high probability that this guy is going to back out of the deal after he (or his attorney) figures out that the ~$100,000 note is unsecured. Sure you could sue him for specific performance, but you as a professional real estate investor could well be viewed by the Court as having taken advantage of an unsophisticated homeowner. How many times did you have to make this same type of unsecured note offer before someone agreed to it?
Re: Yep, out on a limb… - Posted by baldrepublican
Posted by baldrepublican on December 17, 2001 at 17:11:07:
What rates are people paying for unsecured loans these days? Still double digits right. Even if I only get back what I put into it on a quick sale I still have the use of his money at very discounted rate for a long time. Since my first post I have found some better comps and would say 400k is FMV.
Re: Going out on a limb? - Posted by baldrepublican
Posted by baldrepublican on December 17, 2001 at 19:03:47:
You know this is the first guy that I have made an offer like this to. I started asking him to put it in a land trust but he seemed afraid of that. Of course my reasoning was to avoid the dos clause.
In the past I have always made those lowball offers that seem to only insult people. After that you have to deal with them when they hate you making a deal difficult to say the least. This is intended to deal with their vanity.
Can’t let the neighbors know you were distressed and had to sell ya know. Good for them good for me as I see it.
I’m at work and can’t get ahold of my wife to see if he has faxed back a signed agreement yet.
Re: Yep, out on a limb… - Posted by JT - IN
Posted by JT - IN on December 17, 2001 at 17:21:08:
BaldRep:
The more you post, the more I am realizing that you are missing a really good deal here, by focusing on a much smaller issue of: “Even if I only get back what I put into it on a quick sale I still have the use of his money at very discounted rate for a long time”.
Why not buy the property at a steep discount, due to the wife being fed up with the Sheriff visiting the house with notices, etc., and then make some real $$, by selling it for close to the $ 400K of FMV; or $ 350K on a quick sale, and put $ 80 to 130K in your pocket.
Again, I feel that there is a much better deal to be had, than you are going after. It is no amazement to me why Mr. Homeowner is jumping at your deal. You are giving him too fat a slice of the pie!
Just the way that I view things…
JT - IN
How-to not insult seller. - Posted by Brent_IL
Posted by Brent_IL on December 18, 2001 at 18:25:58:
Apparently the seller reaction you’ve described is common.
I’ve never had a seller express feelings of insult
Sellers need to know there’s a reason that you?re asking. People who must sell are looking for reasons to justify the sale of their house to you. Those who can afford to wait will choose to be insulted.
Try this:
As an intro, explain to your seller that sometimes folks selling houses never want anything further to do with the property after the sale, so this part of your contract lists other kinds of acceptable collateral as security for the note.
"For example, if I used a bank certificate of deposit as security for the note I’m giving you, that would be o.k., wouldn’t it? How about [something else specific - not gold, but U.S. golden eagles; not bonds, but Treasury bonds issued by the government of the United States (almost everyone has heard that you can’t leave blank spaces in a contract; fill up all but the last line).]
You know, Mr. Seller, if there was another Great Depression, and property prices plummeted by 90% and houses were going for ten cents on the dollar, your note could lose value if you had to sell it in an emergency. The only way you could attach anything else I own is for me to personally guarantee our note. The reason I’m mentioning this is because banks will routinely add this kind of clause to their documents, but owners sometimes forget to ask until after it’s too late. Is the additional security and reassurance of my personal guarantee something that you feel might be of importance someday?"
It takes an extremely confident seller to say, “No.” It?s all in how you ask.
Add, “Purchaser’s signature and personal guarantee.” to the clause listing other collateral.
There’s your unsecured note. Your re-sale (IF your deal is good) wipes out the note, and your liability.
Re: Yep, out on a limb… - Posted by baldrepublican
Posted by baldrepublican on December 17, 2001 at 18:13:37:
If I offered you 4% unsecured money for 15 yrs would you not jump on it. I think most people would. Where do I get in line for a deal like that?
That’s one for the printer. Thanks. (nt) - Posted by Glen (SoCal)
Posted by Glen (SoCal) on December 18, 2001 at 21:47:03:
.
Rephrase the question… - Posted by JT - IN
Posted by JT - IN on December 17, 2001 at 21:05:51:
BR:
You are asking the wrong question…
Ask if I/You would like $ 100K @ 4% for 15 yrs… OR $ 100K period; no strings, no interest, no repayment…
Tick - Tock, Tick - Tock, Tick - Tock!
Time is up BaldRepub…Which is it?
If you get the answer wrong, I’m enrolling you in the Al Gore in 04 club!
JT - IN
Re: Rephrase the question… - Posted by baldrepublican
Posted by baldrepublican on December 18, 2001 at 24:10:48:
But when 100k cash is not on the table and an extremely low rate no security note is what is there to take. He was not going to give his house away. To he_ _ with his credit just give me something was his mindset.
I’ve made plenty of lowball offers in the past. Nobody wants to take them. I found through the county web site that he got the down payment from a relative that passed away. At least the timing of his getting money and the death coincided, so I’m making an assumption. It’s just more payment than he can handle.
Going back to the question at hand, is this not how banks make money? Borrow low and earn higher returns on their deposits? Corporations do it all the time. Why do you think that companys with billions of dollars in the bank borrow money in the bond markets. I’ll tell ya, they borrow heavily when rates are low and invest that money where it will give them more of a return. I’ll look for a deal at the courthouse steps. I don’t need to get it all in one deal.
baldrepublican