There's still money to be made in skinny deals.
This lead first came to me back in April. The seller emailed me and after a few back and forth emails, I gave him a call. This property was one he purchased through one of those guru bus tours. It was presented as a cash flowing deal so this unfortunate wannabe investor jumped at this "opportunity." Well, a few years later and he's losing about $600 a month after expenses. That's a lot of negative cash flow for one house!
To make matters worse, the tenant stopped paying. That is how things go from bad to worse real quick! I made him an offer, "My cash offer is $250K (about $60K less than what he owed), but that is based on only spending $14,000 on rehab. If the house needs anything more than carpet and paint, that number isn't going to work. Another option is to sell it to me and leave the loan in place."
Even buying it subject to, I'm not sure I want to take his place in the quicksand, but I know some other investors who would be happy to have an almost brand new house in an "A" neighborhood with a nice loan in place. I kept negotiating and pushed for the sub2 purchase. We went back and forth quite a few times and finally agreed on me buying it for what is owed with me paying all costs. I sent it to one of my favorite buyers and he said he would be willing to pay me $12,500 and he'd take care of evicting the tenant.
Well, I had found out the tenant moved out. I emailed my buyer and asked what he thought it might cost to do the eviction. He responded, "$700 for the eviction. The real cost is the money you have to pay on the mortgage during the eviction." Here is the email I sent back;
The payment is $1,903 and it takes about 45 days right? So $700 + $2,854 in loan payments = $3,554.
Add $3,500 to your offer and the deal is yours. The house is vacant now and we opened escrow.
Everything was looking great, then one morning (while I was still in bed) I got a call from the seller. He decided to list the house!!! I couldn't believe I just saw a $16,000 wholesale fee sprout wings and fly away. I tried my best to talk him out of it, but to no avail. I hung up and laid back down. What a crappy way to start a day and I'm not even out of bed yet!!! I laid there contemplating my options a while and then decided I have nothing left to lose so why not call back and see if I can't salvage this deal in some way. After talking with the seller a bit I was able to get him back on board by offering him $2,000 cash at close of escrow. I wrapped up this deal with all my proprietary documention, passed along a great house to a favorite buyer, making a nice wholesale fee in the process.
If you're interested in learning how to wholesale subject to deals, even houses with no equity like this one and many others I've sold over the last few years, head over to my Services page and check out my one-on-one subject to training. It ain't cheap, but it is a lot less than I've made on every single sub2 deal I've done.
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