Another step

[Kimberly 0]

Marvin,

The second property has some promise, but I want to run it by you guys. It's a 5 bedroom 3 bath 2,500 sq ft. In San Bernadino area (California). They bought it for $340,000 and only paid for two months. They said they'd be willing to do a lease and even a 'subject to'. The current mortgage is 2,000. So I don't know if I can do it and still get a positive cash flow. What do you guys think? I will set up an appointment ASAP.

If you have the financial resources to hold it & to pay the mortgage should t/bs not, go for the sub2. If you don't have the money to hold it, do a CA or if there is equity in the deal (I'm guessing there probably isn't if they've only had it 2 months) you might could assign it to another investor.

 

Double check your figures and GET OVER THERE -- What are you waiting for??? Get the appointment set for tomorrow if possible.

 

Kim

[Marvinq 0]

If you have the financial resources to hold it & to pay the mortgage should t/bs not, go for the sub2. If you don't have the money to hold it, do a CA or if there is equity in the deal (I'm guessing there probably isn't if they've only had it 2 months) you might could assign it to another investor.

 

Double check your figures and GET OVER THERE -- What are you waiting for??? Get the appointment set for tomorrow if possible.

Kim,

Ok... OK!!! I couldn't do it for tomorrow (Saturday). But I do have an appointment Sunday. I am first in line on account the seller just decided with me on the phone to move this house too.

I am really going to try to push LO, but I'm very interested in Sub2. I just don't know enough about Subs. For one thing, does the seller only need to sign the deed over to me, oh and also Limited Power of Attorney? How is that done exactly? Also, would I need to get title insurance? Do I need to pay a title company to do a title search? I take it I still need a Memorandum of Agreement? Would I need extra insurance to cover Property damage and lawsuits?

 

Thanks so much for all your help and support thus far!

Marvin

[MichaelC 160]

Marvin, you need to decide, and very quickly, what you want to offer this homeowner. If you sound indecisive and unsure, what do you think the homeowner will be thinking??

And if you want to do a Sub2 deal, that is not something you can do on the fly. You need to be well versed, have all the propert documents prepared and ready, and be triple certain your backside is covered. Anything less is an invitation for trouble down the road.

Based on your posts here, I'd suggest you forget the Sub2 approach until you have a much better understanding of it all.

It's a scenario such as this one why I always say there is no better way than lease purchasing for a new investor to break into real estate. They are easier to understand, quicker to implement, and risk free.

[Kimberly 0]

Marvin,

 

Go for the LO and assign it back to the seller (Cooperative Assignment) if you don't have the money sitting in the bank right now to cover any unexpected little/big things, such as tenant not paying rent, repairs, etc.

 

For the CA what you'd want as your assignment fee would be the option considersation. That should be 3% or so of the future sale price of the home -or- an amount equal to 3-6 months rent. Either way, not a bad payday.

 

In the "marketing" section you'll find a post on how to make your own signs click here.

 

Good luck Sunday.

 

Kim

[-Tony- 0]

Kimberly,

Go for the LO and assign it back to the seller (Cooperative Assignment)

I haven't done any CA's but typically isn't it assigned to the t/b...?

 

Tony

[MichaelC 160]

Kimberly,

Go for the LO and assign it back to the seller (Cooperative Assignment)

I haven't done any CA's but typically isn't it assigned to the t/b...?

 

Tony

Yes, it is.

[Kimberly 0]

Tony,

 

I haven't done any CA's but typically isn't it assigned to the t/b...?

 

Obviously I wasn't awake yet when I wrote that. Assigned to the t/b is correct as Michael has already pointed out. What I was trying to get to and didn't was that he could have a relatively quick payday and be done with the deal.

 

Kim, who'll proof what she types before she hits "add reply!"

[Marvinq 0]

Thanks Kimberly and you too Michael, I do have a chunk of change. But, I'm still worried about losing it and getting nothing in return. I'm still leaning towards just a LO Sandwich. The only thing of concern to me is, according to the seller, one room needs some work. He estimates about $3,000. Is there any way I can push this onto the TB or should I just have it fixed myself?

 

Marvin

[Kimberly 0]

I do have a chunk of change. But, I'm still worried about losing it and getting nothing in return. I'm still leaning towards just a LO Sandwich. The only thing of concern to me is, according to the seller, one room needs some work. He estimates about $3,000. Is there any way I can push this onto the TB or should I just have it fixed myself?

 

A Sandwich LO will still leave you in the middle where you can lose $$$. You're just not as permanently in the middle. Make sure your lease with the seller states that it can be terminated by you with 30 days written notice. Obviously not your intent, just a precaution for a worst case senario type deal.

 

You could have an agreement with your t/b to do the work. If that is to be part of the t/b's option consideration, require it be completed to your satisfaction before your t/b moves in. Check your state's landlord-tenant laws to be sure there isn't a limit. Where I am, Oklahoma, you can have an agreement for your tenant to do repairs and maintenance, but it has to be conspicuous and separate from the lease itself.

 

Don't just take the seller's word on what the repairs will cost -- estimate it yourself. The seller may have underestimated it to you, so it wouldn't seem so bad, or he could have received the estimate from the most expensive contractor in the area.

 

Kim, who proofread this before hitting "add reply"

[MichaelC 160]

The only thing of concern to me is, according to the seller, one room needs some work. He estimates about $3,000. Is there any way I can push this onto the TB or should I just have it fixed myself?

Sure there is, Marvin. Advertise the property. And when the t/b prospects begin to look at the house, explain that you are aware of the necessary repairs, and that is why you are offering such a generous 50% rent credit.

Or, you can offer the tenant/buyer a reduced price on the backend if/when the repairs are completed. Be creative and flexible and you'll be able to structure a deal that benefits both parties. But, I must recommend against you doing the work yourself unless the property is your's. Take title, then do the work. Otherwise, let someone else take on that burden.

[Marvinq 0]

Well, Ok, I didn't offer to get it under contract. There were a few other issues that concerned me.

 

One, is the distance from my place. It took approx 1 hour to get to the place, on a weekend with low traffic conditions. In LA usually we have very bad traffic conditions espacially on weekdays. The distance wouldn't be a problem if I really knew exactly everything I'm doing. But, I'm just wondering too if I should really concentrate on something closer until I know the ropes.

 

Also, the property has a lot of thick ivy and the owner has stated to have seen rats running around. The neighbor also has a fruit tree with its branches totally over the property fence. It looks as if the tree belonged to the property when in fact it is just overgrown from the neighbors yard.

 

The room that needed work has a wall that is adjcent to the outdoor planter. Because of improperly protecting the wall from the watering of plants. The wall has rotted away from the outsite. The brick from the planter is exposed to the inside of the room.

 

Only one of the five bedrooms has carpet. The owner says the rest of the rooms will be carpeted tomorrow (yeah, I know... who knows for sure really). Although the rooms do have new paint. So basically the floors are cement in those rooms.

 

The light switches are very old style swiches. Some don't work properly. The lights don't aways go off when switched off. You have to do some special technique to flick it on or off.

 

One surprise was the outdoor pool. I didn't know about this going in. The pool needs a major cleaning. There is a separate structure for the pool used as dressing rooms. The owner didn't seem to want to take me back there.

 

Also, since they are not completely moved in and the rooms have no carpeting, there are boxes all over the place and I didn't see much of a way around it if I were to show it to TBs. As of right now, they don't have anywhere to go. But they are eager to go.

 

I backed out of offering a LO. A part of me was just wondering whether I'm biting off more than I can chew. And I just started thinking to myself, maybe I should start with something a little easier.

 

I didn't tell the owner No outright. I said I'd get back to him. What do you guys think? Am I over thinking it? Is it easier than I think? Am I just looking for an excuse not to do it? Am I caught in analysis paralysis? Or was I right to back out?

 

A friend thinks it may be a good idea to get the house by however means, fix it up and resell it. I can get some help if I choose to do this, but again, I guess I'm unsure whether it'll be worth the work.

 

hmmm... On the other hand, Kim, I know you push CAs and a part of me is thinking maybe this would be perfect for that situation. I'm going to try more information on it and maybe I can help the owner out on this and still make out good.

 

Thanks so much for all your input so far.

Marvin

[Kimberly 0]

Uh Marvin,

 

Sounds like a rehab to me.

 

One surprise was the outdoor pool. I didn't know about this going in. The pool needs a major cleaning. There is a separate structure for the pool used as dressing rooms. The owner didn't seem to want to take me back there.

If you can't see down into the pool, you don't know if it has any cracks. Expensive to fix and there aren't that many, around here at least that can do it, you may be way down a long waiting list. If the pool is not operational, you don't know if the equipment works. If the owner didn't want you to see the pool house, well, do you hear that? I think it's an alarm going off.

 

Did they buy it to live in, or to rehab it and discovered they were in way over their heads?

 

Still interested, were I you, I'd:

1--Get three estimates (in writing).

2--Find out what the house would be worth after it was repaired (ARV).

3--Take ARV and subtract cost of repairs, an oops factor (5%?), and profit = your offer

 

I don't think you'd want it sub2 unless it'd be worth considerably more after fix up than what they owe + repair costs.

 

You might want to seriously consider getting an experienced investor locally to help you on this one, even if it means giving all your profit away in exchange for the education of learning how it's done. It might if it needs enough work, depending on the lender, be a short sale possibility. There is also the possibility it's not a deal at all, no matter what, based on the figures involved.

 

A CA can get you quick cash, but it isn't a fit for every situation.

 

Kim

[Marvinq 0]

Sounds like a rehab to me.

Kim,

Yeah I sorta figured.

 

If you can't see down into the pool, you don't know if it has any cracks.

 

Sheesh, I didn't even think of this, I guess that's why I'm here!

 

 

Did they buy it to live in, or to rehab it and discovered they were in way over their heads?

 

I didn't ask them this question specifically. But, I think it is entirely possible.

 

You might want to seriously consider getting an experienced investor locally to help you on this one, even if it means giving all your profit away in exchange for the education of learning how it's done. It might if it needs enough work, depending on the lender, be a short sale possibility. There is also the possibility it's not a deal at all, no matter what, based on the figures involved.

 

I think this is a very good idea. I will definately accept help on this one. I'm just glad I walked away from it. I will look for someone who might be able to help me.

 

Marvin

[MichaelC 160]

Marvin, this doesn't sound like a good first deal to get started with. The distance, coupled with all the unknowns involved, make the risk to reward ratio shaky.

First things first: what is the asking price versus the present as-is value? Then, what is an accurate cost of repairs and the after repair value? Knowing this info will go a long way in determining if this is worth pursuing.