LO or NO? - Posted by Dennis (South FL.)

Posted by DaveSawyer(LV) on January 11, 2004 at 09:36:46:

Why not just try to get a straight option for 6 months… and try to retail it. Allowing him to list it with realtor (in this case, himself). If you sell it, you win, if not… no loss. Don’t give any money though. It’s a no lose situation for him.

Just an idea.

Good Luck,

LO or NO? - Posted by Dennis (South FL.)

Posted by Dennis (South FL.) on January 08, 2004 at 08:23:05:

Im trying to work a deal w/a very motivated seller. House comps at $420-$450 (appraised at $450). First is about $240; second is about $60. PITI totals about $3K/mo. Comparable rents range from $2,700-2,950. Hse is only a few yrs old and doesnt need any work. Nice area. Seller was behind 3 pmts on the 2nd and scrounged up $ from relatives to make it current. Now hes behind 1 pmt on the 1st. He tells me his bottom line is $380K, and hes listing it in a wk. He`s the listing agent, and agreed to put me down as a listing exception should I arrange a deal 1st.

Ive ruled out a short sale w/his bank since the hse presents too well and hes only 1 pmt late. Im thinking a LO might work under the following scenario: (1) the option consideration I get from a T/B (maybe $12K) goes to pay down a chunk of the second to help bridge the PITI gap (the seller says he needs cash, so instead of giving it to him, Id pay down some of his debt),(2)the T/B pays me $3,300 or so in rent, w/a few hundred of that an equity credit.

Ive got conflicting thoughts: One, I imagine folks that can afford $3,300 in rent can easily carry a mortgage on a $400K home. Two, "yeah, but they wont necessarily have upwards of $70-$90K in closing costs." Three, I think that theres so much equity here between my purchase ($380K) and LO sale price ($450K or more) that I should be willing to "give up" some equity to my T/B (in the form of the monthly credits) to make the cash flows more attractive to me, especially since its maybe 50/50 that the T/B will actually exercise the option anyway (are the credits nonrefundable?). Four, it seems like if I have to go through so many hoops to make the #s work, then theres not an LO here.

But, the ingredients for a deal are here: big problem and big equity. Theres a deal staring me in the face, guys. Im not sure I`ve recognized it. Is it an LO or NO?

Another Idea - Posted by DaveSawyer(LV)

Posted by DaveSawyer(LV) on January 11, 2004 at 09:38:22:

Posted answer to wrong person. Please see other post.

Don’t think so - Posted by B.L.Renfrow

Posted by B.L.Renfrow on January 08, 2004 at 16:37:04:

I don’t see much of a deal here. The first thing I notice from your post is the unmotivated seller. This guy has had trouble making the payments in the past, is having trouble now, needs cash and yet is holding out for over 90% of FMV. While this is common, it also tells you the guy is unmotivated/unrealistic.

Next, unless these numbers are typical for your area, you can assume the holding time (as well as holding costs) will be significant. In most places, there just aren’t that many buyers (or T/Bers) for houses in this price range.

The fact is, most folks who can afford a $420-450k house and a $12k option payment aren’t going to have much trouble getting a conventional loan. Sure, now and then you’ll run into one who can’t or doesn’t want to, but it might be a very long time until that person shows up.

Can you afford the holding costs until you find a qualified T/Ber? For most people just starting out, it wouldn’t take too many $3k monthly payments to wipe them out, if there’s no income from the property.

There MAY be some “big equity” here…but remember also that comps in this price range are also notoriously unreliable, because there often just aren’t that many of them, and the properties tend to be unique in nature. And while the seller may indeed be headed for a “big problem”, he doesn’t see it yet.

I’d tell the guy to go ahead and list it, and give him your card and tell him to give you a call in a few months if it doesn’t work out. If he ever gets to the point where he’s ready just to have the loans paid off (and maybe a few thousand extra), then take an option on the property and do your best to market it. That would be a far safer route than trying to L/O the thing now.

Brian (NY)