Dallas-Fort Worth Real Estate Investor Club

First time Investor buying Subject-To with NO Equity…Need Advise

  • 30 Aug 2009 10:13 PM
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    Message # 213108
    Deleted user

    Hello Everyone!

    I plan on buying a house “Subject-To” in Coppell, TX

    GIVEN:

    • •1.       Loan Balance $162K
    • •2.       Interest Rate: 7.5% (Flat 30 Year Term)
    • •3.       ARV, CMA Report $165K-190K
    • •4.       Built 1979
    • •5.       $1707/Month Payment (includes PITI + PMI) (money in Escrow)
    • •6.       Neighboring area houses for Lease ($1200-1500 a month)
    • •7.       Needs about $10K
    • •a.       Paint
    • •b.      Carpet
    • •c.       Some Electrical
    • •d.      Foundation
    • •8.       Behind 2 months’ rent (about $3,500 needed to get loan up to date)

    Reasons why I would consider this deal

    • •1.       First investment deal
    • •2.       Want to learn
    • •3.       Be able to get the $8K tax credit (first time home buyer)
    • •4.       Get additional tax cut because of being in a higher tax bracket, due to my business

     

    Reasons why I Don’t want to do this deal

    • •1.       Monthly payment to the lender is higher than the market value
    • •2.       About 3% equity in the house after repairs

    Exit strategy will be to offer owner financing and to do a wrap-around loan

    Not planning to make a lot of money on this transaction, wanting to get my feet wet and learn

    Please provide any advice that you may have.

    Thanks for your time.
  • 31 Aug 2009 10:28 AM
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    Reply # 213227 on 213108
    Robin Carriger (Administrator)
    It sounds like the rents are too low for it to cash flow very well.  Also, for me, no equity = no deal; even on a sub2 deal.  With it being your first deal and repairs being needed and you not planning to make a lot of money, you will probably lose money; especially given the price range of the house (a little higher than a normal deal).  You can find a far better deal than this one.  If you do this deal, you'll learn some things, but it could be an expensive education.  Others may have a different opinion, but that's my two cents.
  • 31 Aug 2009 3:35 PM
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    Reply # 213339 on 213108
    Deleted user
    Run away from this deal.  You are too upside down to even consider.  Property is to large to make it your first.  May look into a short sale.
  • 02 Sep 2009 3:29 PM
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    Reply # 215308 on 213108
    Deleted user
    Coppell is a pricey area and property taxes are very high.
    Being a newbie myself, I suspect I too will come across cases like this where there is no equity. When they do, Im considering a "short sale flip", involving transactional funding with a double closing. At least that's the plan at the moment. Id much rather have equity in the situation though because short sales can get complicated from what I've discussed with other investors.  I plan on taking  Robin & Cindy's short sale class coming up.

    Another thing that I keep in the back of my mind is "if im not at least a little embarrassed about the offer, then its not low enough".
  • 11 Sep 2009 1:18 PM
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    Reply # 217942 on 213108
    Jesus Galaviz

    I think some of the best advice you can get is:  be patient.  There are tons of no-equity deals out there...avoid them all, esp if you are inexperienced.  If you patiently comb through deals, you will eventually find good ones.  Once in a while, you will find one that's too good to pass up.

    The great opportunities to make money in real estate are not about to go away.  Decide what your parameters are for "this is a deal," and then be vigilant, yet patient, in finding properties that fit your model.
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