Help with a subject to and a 3/1 arm - Posted by Michael

Real Estate Investing
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Help with a subject to and a 3/1 arm - Posted by Michael

Posted by Michael on July 04, 2004 at 11:26:36:

Need some assistance analyzing this subject to.

Home is in a nice neighborhood, 5 bed/2 bath, 30 yrs old, 2 story 2,600 sf, 2 car garage and in good condition. I figure no more than $3500 repairs as the home is in very good condition. Has new roof, new appliances, and relatively new carpets.

Owner is current except for this month. They own several homes but have been unlucky in the rental market and are behind in one other home 2 months, currently vacant. This home is also vacant, and behind this month only.

Asking: $155,000 (current mortgage) 3/1 arm 5 5/8%
Tax assessed value: $162,700 (2004)
Monthly PITI: $1,174
Estimated repairs: $3,500
Market value: low to mid 170’s (this currently being confirmed with comps, owner had the home appraised 2 years ago in the high 170’s so I am shooting low)
Rent: Owner was renting at $1200 monthly to a family member (Currently confirming market rent)

Owner wants to move on. He is open to me a making the payments for him until I sell the home. Haven’t met face to face, just getting a feel over the phone.
The numbers look good, my concern is the 3/1 arm, with the home appraised 2 yrs ago so time is soon due. I am in a position to refi if I had to, but would like to avoid.

My exit strategy would be to lease option the home. The neighborhood is a desirable neighborhood to live in.

I realize that all the facts are not presented here, but I wanted to get the point of view of you more experienced investors, especially in regards to the mortgage.

Thanks, Michael

3

Re: Help with a subject to and a 3/1 arm - Posted by Michael Moxley

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How about shorting the home? - Posted by Michael

Posted by Michael on July 04, 2004 at 12:18:40:

Thanks for your quick response. I have a friend who has completed over 200 short sales. Maybe the best route is to get my friend involved with both homes and work with the bank, and I can buy the homes discounted. He does not want to forclose as he is concerned about his credit.
Michael

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Re: Help with a subject to and a 3/1 arm - Posted by Jonathan Rexford

Posted by Jonathan Rexford on July 04, 2004 at 11:43:34:

Well take a look at the mortgage and see what it is tied to. Find out when the adjustments are made to the ARM and get a good feel for the worst possuble cash flow.

BUT what really concerns me is the deal itself. Where is the PROFIT?

This is a Lease Option deal I am sure because it is not going to retail.

Looking at the numbers can you push the 170K up a little? and you mentioned that you were going to check in the market rents.

I can see you dumping 9K in this deal based on two months holding costs and repairs with 1% closing costs at 170K.

I think I would ask him for 10K and buy the home. But that is another conversation.

Now lets just look at the numbers on a lease option.

If you can PUMP the price to 179,900 with 5K down and get 1500 per month you might have some kind of deal but man what an out of pocket expense.

Some cash flow based on those numbers above $326 per month plus the possible of 5K up front that will give you about 100 bucks out pocket if all goes right.

Personally I would pass on the deal. But its your market. You may have an idea better on the numbers that what you had presented. If I am wrong then just disregard what I said.

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Re: Help with a subject to and a 3/1 arm - Posted by Phil(ATL)

Posted by Phil(ATL) on July 04, 2004 at 11:42:45:

Michael,

Since the ARM has one more year to go before adjusting, I would probably go this route:

Tie the house up on with a purchase contract for 155K, then market the hell out of it for 165K (spending about $500 for guerilla marketing - flyers in apts complexes, Walmart parking lots, laundry marts, etc). Spend little financially on marketing on more on your physical efforts.

Then you should net about $10k on a house you didn’t even own.

Say the house is worth 175k now. 5k towards “fix up”, 5k towards closing costs and you get an assignment fee of 10k. Done Deal.

I would NOT take a loan out of this house in my name - whether thru a refi or purchase.

Just my thots…

Goodluck.

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Re: How about shorting the home? - Posted by Jonathan Rexford

Posted by Jonathan Rexford on July 04, 2004 at 13:54:32:

Best route is determines on what you can achieve. I would approach it when you get more information.

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Re: Help with a subject to and a 3/1 arm - Posted by Allen Radcliff

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