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Hi gnirre,

what kind of financing is this assuming?

The realistic & conservative best you have available to you for the dollars in question. IOW, if you're bringing in cash, that cash has a carry cost... at minimum, it's the equivalent to your Prime rate (or Prime +) HELOC... 7.75% plus. Otherwise, figure the costs of your hard money for renovation, or non-owner occ longterm mortgage rates.


i assume "best", but if 5% doesn't cashflow on a carry basis, but 20% does... then assuming i can tie up 20%
for the duration are you saying lay down the cash needed to create a cash flow positive situation on an ongoing basis?


You lost me on that run-on. Remember, cash has a carry cost equivalent to the liquid financing it would have paid off.

because i see a third way, and that is to allot 20% to the property
but only put down 5% keeping 15% in reserve and getting the lease-purchase person
in there using the reserve to make up the difference for the carry period.
and generate interest on the reserve in the interum.


I suspect you are making it too difficult & convoluted, perhaps.

I said;
Sale price $525... needs $26k work... $499 "investor's retail."
Chop another 20% before it's interesting...
$399k, and we have a closing number.


You;
ohh there couldn't be THAT much profit available... are you serious?

Serious as a paternity suit, yeah baby!

are you applying percentages from lower priced property?

You lost me here...

that would be $400k with $26k of work to sell for $525 easy
not much more work to get to $600 if you pick your property correctly
like i said the spread is wide...


None of these numbers are determinants of what is YOUR "make sense" acquisition number.
The key is to determine what makes safe and profitable sense for YOU, and then find those that fit YOUR figures... not the reverse.


so, when you pay the loan current, you're attempting to take over the loan
so the loan balance has to be acceptable. otherwise, you're trying to get
the bank to short sell? if you're trying to get a rewrite, the deal doesn't
need to have the loan brought current, they just evaporate the missed payments
and that's that?


Correct, and correct.

is that only when buying 'underwater' situations? because i don't see
very many underwater preforeclosures. i see people with a loan
with bad terms and in the last year 0% price appreciation...


You need to open your eyes wider. MANY people who fit your description are also "underwater" in terms of their own affordability.

When someone has a monthly payment of $2,000, and they are grossing $1,800 a month (for whatever reasons,) and they hate Realtor®s (for whatever reasons,) and anyway do not have time (in their perception) to list their home for sale anyway because they are 3-4 months late on their mortgage and they know "the gig is up".... it doesn't matter whether the quick resale of their home is $100,000 or $1,000,000,000... they already know they have zero chance of winning any of their equity from the lienholders...

ALL they want is SOME degree of "escape."
Escape from impending foreclosure,
Escape from the legal ramifications,
Escpae from the stigma, and
Escape from the spectre of ongoing neverending collections harrasments.

When you find such a distressed seller, who has already reached an emotional abandonment of attachment to the asset equity itself... NOW you have the potential to determine whether you want to acquire via assumption of the existing financing by bringing it current, OR going to battle to win a shortsale from the carrying lender(s).


here's a real example to chew on.
541 pacific avenue.
on MLS for $589,000 (then 579,000, now 558,000)
there's a renter in there but that rent money isn't going to the lender
cuz they're in NOD land and have been for 4-5 months
the note was originated 14 months ago and the loan amount
is $398,000.
this would sell for $525,000 but the next door neighbor house
is puh-rety crappy and it's just about the worst block in this nice little town
i would say $500,000 for the 14 DOM is more likely.
wait for the auction? i've inspected the house, get it at first bid for $398k
sell it for $498k? or is that too thin a margin?


Personally, I'm completely uninterested in an auction...

Have you interviewed the tennant? Are they solid (enough, anyway)?
Do they want to remain in the home? Would they like to become an owner?

Cut the numbers in half on this example, and it's very similar to a deal I am in the middle of in Georgia right now.

Landlord is in default. Mortgage pymts $1,600... rents $950... completely underwater.
Tennant DESPERATELY wants to stay... can squeeze out $1,200 monthly including taxes/insurance.
Home just appraised at $149,000. I am shortsale negotiating to buy it at a target of $90,000.
I am simultaneously getting the tennant approved to buy it from me at $160,000.
I'm making the whole thing work (with all curtains pulled open, all parties know what I am doing.)
The tennant can only qualify (poor credit) for a loan at 90% LTV...
Underwriting only calculates at the lower of appraisal or contract... so $149,000 is the underwriting number.
90% of $149,000 is $134,100.... which will be the tennant's new 1st mortgage.
I will carry the 2nd, all the way to 100% CLTV at the full $160,000 price (thus $25,900.)
The tennants monthly payment to me will be a deferred-interest (NegAm) payment of a flat $125/month, which keeps her inside her $1,200 net monthly ceiling budget.

Tennant is fully aware that at the $160,000 purchase price I am being compensated from future sale or refi payoff proceeds for arranging the deal, and I am taking the risks of the asset market value. If the market depreciates, or even stays flat an extended period, I will be forced to eat the losses in a shortsale when the next buyer desires to buy... and as a 2nd lien holder I'll forego any collection attempts on the tennant/seller since she'd be walking away without any proceeds herself.

STILL... my upsides;
A) Buy at $90k (target... say I fail miserably and only get it at $125,000...)
B) Sell at $160k... mostly unrealized profit taken on an installment payment basis,
C) Buyer's financing pays off $134,100 of buy price... I realize between $9k to $44k in profit, depending on how I bought,

Risks;
A) Tennant decides last-minute to move & not buy. (That's the most significant risk I can think of.)

Risk abatement;
A) Tennant sent in a $2,500 non-refundable earnest money deposit toward closing costs... she's got skin on the table.

I've got two more like this in the hopper I'm working on.... the KEY is finding the exit prior to executing the entry, whenever possible.

Cheers,
Dave
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