I need help - Posted by tampasteph

Real Estate Investing
1

Posted by eric-fl on January 09, 2003 at 14:20:17:

Well, I don’t know what all that stuff about the insurance is. The fact that you are questioning whether it’s bs ought to tell you something. A little common sense goes a long way; would you just shrug off a couple hundred dollars a month increase? A short escrow account would explain a higher payment, but that should only be for the year in question. Ask him when that’s up. It sounds like due diligence will be required for this deal, if you want to l/o it. Just make sure to get a title search before committing to anything.

2

I need help - Posted by tampasteph

Posted by tampasteph on January 09, 2003 at 04:32:37:

I just spoke to a seller who called on one of my signs. He is a part time investor who has several vacancies and would like to get rid of this one asap. He is willing to deed the property to me and keep the loan in his name. The payments are current. Here is some info:
PITI: $1234
mortgage balance: $96,000
fmv: $120,000
interest rate: 8.3%
3bed/3bath, 2400 sf, split level home, built in 1979.
Needs about $3000 in repairs (according to seller, I will verify today).
Was being rented until September for $1200.

I do not have the funds to do this deal myself, and am wondering if these numbers look ok to flip to another investor. I am meeting with the seller today at 4:00, and would like to know what would be the best way to tie this up without getting stuck having to make the payments myself. I can’t afford to. What can I do to make this work? The seller is willing to work with me and says he will do whatever it takes. He is open to anything.
Any comments/suggestions welcomed.
Thanks,
Steph
p.s
this will be my first deal

3

Re:I need help - Posted by Kristine-CA

Posted by Kristine-CA on January 09, 2003 at 12:06:02:

Steph: it looks very thin, from this wholesaler’s perspective. One option might be to get an option to buy for 60-90 days. Make the option subject to existing financing to give your end-buyer more options. Market for an investor that will take it as-is, and willing to buy your option for cash fee. Seller continues to make payments during this period.

Are the rents too low, by any chance? A property running negative on PITI alone is not a good sign. Are you certain of the FMV? Make sure that the FMV is a comp number and not a number from an appraisal, original loan amount or previous purchase amount.

Let us know how it works out. Sincerely, Kristine

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Re: I need help - Posted by Sean

Posted by Sean on January 09, 2003 at 09:11:02:

Steph,

I personally would not touch this with a 10 foot pole. You have a property at 80% of its loan to value, without the repairs. His previous renter payments weren’t even covering his PITI!

Post repair you are looking at 83% LTV (100/120) and you haven’t figured in any costs of marketing, advertising and/or transfer taxes etc. Unless your market is incredibly strong, which I suspect its not, if you want to flip a property quickly you are going to either have to be flexible with terms, or sell at low end of Value Range…

In the best case scenario, you could see around 10k profit on this property with a quick flip. But with a monthly payment of 1250 a month, any carrying will eat that away relatively quickly.

Risk to reward is not great here, IMHO. Admittedly I am a buy, fix up and hold guy, not a flipper, so others who are more specialized in that area may give you more advice. But I know I personally would not touch a property needing 4k of work, with a monthly carrying cost of 1250 and only a best case of seeing 10k… especially when the current owner can’t even get rents to cover his costs. Especially if its your first deal…

Best of luck.

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Re: I need help - Posted by eric-fl

Posted by eric-fl on January 09, 2003 at 08:54:09:

To answer your question “What can I do to make this work?”, the answer depends on your intended exit strategy. To be honest, it seems a little skinny for a flip, since a 96k balance on 120k FMV already has you in for 80% LTV, before even doing anything. Factor in your flipping fee, repairs, holding, advertising, and closing costs, plus a possible commission, (if listing becomes necessary), and there isn’t a whole lot left for the investor.

It would probably make a nice L/O property as tr suggests, but that payment is too high. According to my calculator, a 96k balance on a 30 year note at 8.3% is a $725/mo payment. At fair market rent of $1200, that leaves $475/mo left over for taxes, insurance, and cash flow. Nice deal. Even at 120k PV, it’s $905 before taxes, but that still leaves about $300/mo to play with. Although, of course, that equity should become yours for taking on his problem, not his. Plus, 8.3% is high, though maybe not for a non-occupant. Bottom line, I would highly suggest investigating any refi options with this seller. Is this, by any chance, a 15-year loan? If so, that also needs to change. As for repair funds, have the seller pull that out of the refi, thus solving two problems for you.

If, for whatever reason, the seller just can’t refi, then ask if they can take part of the payment for the next 3-5 years. $400 a month is better than $1234 a month. It might even work with $200 a month, but ask for more first, you never know. With 4 months of vacancy, repairs, and lower equity, that may be their best option. Please keep us posted on how this goes.

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Re: I need help - Posted by tr

Posted by tr on January 09, 2003 at 06:59:43:

steph he been eating the payments he will continue to do so. I would offer he makes payments for 60 days, get the deed and put an ad in Tampa Trib for LO. Use your credit card to repair if you cant get 4-6K down for a 3/3 with 2400sf then your not doing something right. If you don’t want the deal contact me I’ll pay you 500 for the lead if I buy.

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Re:I need help - Posted by eric-fl

Posted by eric-fl on January 09, 2003 at 14:25:49:

Not to speak for Steph, but $1200/mo for a 20+ year old 3/3 in Tampa sounds about right. Even if it is big. Split levels are more common in areas with sloped lots, which is definitely not Tampa. I’m guessing, based on 3/3, 2400 sq. ft., split level, that it’s a 2/2 with an addition.

8

why the payment is so high - Posted by tampasteph

Posted by tampasteph on January 09, 2003 at 10:02:46:

The seller gave me two different reasons for the payment being so high. He said it used to be $984, but then his insurance policy did not renew. I asked why, and he said something about the market being oversaturated, and the insurance company wanted to pull out of the area. Now, I’m just starting out here, so I don’t know if that makes any sense, or if it’s bs. He also said that his escrow account was short $1700, so that amount was factored into the monthly payment.
The loan is for 30 years, not 15.
If this isn’t making sense, I apologize, I haven’t had much sleep.
I will keep you posted as I get more information. I’m meeting with him later today.

Thanks,
Steph