Terry:
Not sure WHERE this home is located? This will have some bearing on what the potential for continued appreciation or equity growth might be?
If you sell this property or “quick turn” it, you are creating a highly taxable transaction as the income generated would be more than likely be considered ordinary income to you.
You did not mention what the home would bring in the form of monthly rents…?
Assuming the existing financing is attractive (long term fixed interest rate type financing, etc.)
Then, If you are OK with leaving your $12K cash (the initial $10K + $2K you spent for cleanup) into the deal and the home can be rented out for “breakeven” or positive cash flow, then why not consider this as a long term “KEEPER” property…?
You have no personal liability on the existing debt - since you took title “subject to”. You will get some tax benifits from the rental use (write offs, depreciation, etc.) and you apparently have picked up equity going in to the deal from the beginning (my favorite), since you acquired a home for around $100K that is worth about $145K. If this property is located in an area that has good potential for growth - why not hold on to it…?
If you need to get your $12K cash out, then another “twist” might be bring in an investor who is willing to replenish your $12K in invested capital, then have you manage the property as a rental and then when the property is sold down the road (which also has some tax benifits to you as well) - split some of the upside with the investor.
I aquired 2 weeks ago a home subject to. The details are as follows:
Underlying is 88k; I paid 10k to get it out of arrears and legals. People moved out a couple days ago. Comps have it around 145,000. PI subto is 750 a month, taxes and insurance bring it up to 1200.
I am in it for the 10, plus around 2000 to clean it up, repaint, etc.
What are my options ? I could quick sell, try to finance it in my name and take out the equity and lease it out, or do seller financing. What would be some of the suggestions from the group as many of you are very experienced in this. Thanks,
Posted by Jason (AL) on June 30, 2005 at 14:59:02:
Well, seeing that you now own the home, you can do anything you please…but you already know this.
What are your plans/goals?
Do you want cash, cash flow, or perhaps both?
One way to get both is to sell with No Qualifying owner-financing, as opposed to say a lease option sale or retail sale.
Benefits include:
More $ down
more $/month (comparable market rents have no effect on what you charge monthly)
Cash on the back-end of your sale.
Higher sale price due to the fact you’re providing easy home-ownership with No Qualifying and with terms.
You can sell on any term you’d like.
If you want to get your cash out faster, then sell on a 30 year term with maybe a 1 or 2 year balloon.
This will allow your buyer enough time to get their own financing.
Selling retail will take longer, thus effecting your profit due to holding costs as well as Uncle Sam wanting a cut. Also, a buyer may want a small discount as you usually will not get full asking price.
Unless you’re in a hot market.
Also, you may offer an incintive of selling for say 7 or 8% down, as opposed the banks’ 10%.
But make sure when it’s time for them to get bank financing that it’s a better deal (monthly) than what you’re charging. That’s if you want to be cashed out.
Again, this is up to you.
You can always do as Michael suggested and keep the property as a long-term rental for the cash flow.
If the property has enough equity (now or down the road) you can refi, get some cash out and use it however you please. Just make sure the rental income covers your expenses.
