I find it hard to believe that someone with even only 20% equity, never mind 25-40%, in the property could not get a loan, even it unemployed. It might not be at the best rate, but think it would be easily doable. 2nd mortgage etc.
Flip this House --- on A&E
- Thread starter RayFinkel
- Start date
I'm not 3tees’s sweetheart (NO HOMO) but what he has said in previous posts was mostly correct with the following exceptions. Initially he stated approx 75% off but I think he meant 25% off as I believe I say this typo caught in a later post. Also as someone pointed out his interest deduction thoughts can be slightly off dependant on his earned income and the actual interest paid. I have to give him credit as he stated he was new to this and has done research so he is far ahead of many others both in information, process, and initiative. If 3tees was a contractor he would be right in the thick of it as another poster pointed out that contractors are the most informed in terms of code, house condition, and ability to renovate a house if necessary.james t kirk said:60 to 80 percent off eh....
Not that I'm saying you're full of shit, but, well, I think you're full of shit.
There's only one little problem to that scenario. The shelp who owns the house, the guy you wanna fuck over, the guy who's up to his ears in debt, yeah, him, Well, he's up to his ears in debt with the BANK. The bank owns that house (and anyone's house who has a mortgage there Sherlock) And guess what, the bank gets their money before Shlep does. That's how it works.
Any smart real estate transaction usually involves this thing called a "title search". (At least if you have any brains.) That title search reveals these little details called liens. So, Shlep may sell you that $500,000.00 house for $100,000 (ba ha ha, your figures not mine), but the bank actually owns the house, not shlep. So, you just gave shlep $100,000.00 in cash and he's in Mexico sipping pinacalada and sampling the local talent and you don't get shit becaue the bank still owns the house.
See the numbers don't add up, because if Shlep is mortgage free, he's not going to sell you the place for anything less than full market value now is he. Even if he's in deep elsewhere, he can get a line of credit on the property for 80 percent of it's market value. Now on that 500k house, that translates into 400 k of credit at prime.
Now explain to me why the fuck anyone would sell you that 500 k house, to get a 100 k from you, when the bank will give him 400k.
Not that I don't believe you....
Also technically the owner if the house OWNS the house with the bank having a lien on it. The bank never owns the house unless they buy it back out of foreclosure. This is a technicality and you touched on it in your post above but I thought it important to underscore.
hairyfucker said:
Damn - you ain't my b*tch? Aww - come on. What if I let you in on a deal?
Seriously though thanks for pointing-out the obvious, including the typo. It's 60% to 80% OF and not OFF. I thought there may have been a mistake when James Tiberius kept saying "your words..." and spouting nonsense about something that would never happen. I had to re-read my post to spot the typo.
Johnny Larue (love the name by the way, have you been with the Gerbils recently), the only professional I have not consulted with yet is my accountant, so I know you're right in terms of the deductions. Keep in mind, and I really have to make this clear, I have no intention of doing more than $15k in renovations - more like staging to get the house ready. There are much less delays in putting down new hardwood floor than building a new room, or even an addition to a house. The work I do will not likely involve getting permits.
I think KBear and James Tiberius need to realize something that I said earlier on - these deals aren't on every street corner, but they do exist and can be found - even moreso as the economy gets worse (I actually don't think they fully grasp what I'm doing). Good investors in any arena (stocks, venture capital, etc...) spend more time looking at deals and choosing the ones that work. So throw more scenarios at me and throw more speculation at me. I believe many of your speculations to be incorrect, especially about the lose and easy ways of banks giving money to anyone who has equity in their house.
Call it a difference of opinion, but from what I know banks require you to make regular minimum monthly payments on equity loans - usually just the interest, or a portion thereof. Now if both are unemployed, and need to borrow $200k (as per Tiberius' example), how can the bank ensure that the relatively hefty minimum monthly payment will be made when you have no income? Another example - say you get 2 months behind in your mortgage, do you think the same bank that holds your house will give you an equity loan when you can't even pay the basic mortgage to begin with? You could try going to other institutions, but that takes time, and will also require credit checks, and meanwhile the debts keep mounting.
Let me ask both of you this question point blank. Would you loan money to a couple that is both out of work, and because one is injured has no prospects of going back, and possibly has high medical bills? Would you loan money to someone who is already two months behind in paying you what they owe you principally? Answer the question simply - yes or no? I think you'd both be incredibly foolish to say yes you would. And if you say "yes, but I'll sell their house from under them when they don't pay" think about the time and expense involved in doing so. Banks are in the business of loaning money, not repossessing houses. As I said above, good investors (and giving someone a loan is an investment to the person lending the money) spend more time looking at deals than investing in them. In other words, banks can be selective in what they do. There are enough people out there wanting money, so banks can and do say no. One definition of a bank is "they'll loan you money when you have no need for it, but won't offer any when you do."
And as for scenarios you point out that won't work, or will point out that don't work in the future... guess what - I just won't invest in that property. I'll wait for one that does work, and if it takes a year or even two, that's fine. There's another saying in Real Estate investing - keep your day job - it will allow you to finance deals, and support you through ones that don't work. I got into real estate investing because I had a fantastic year at my own business last year and decided to look into it with cash I have on hand to invest. I have no intention of folding-up my consulting business - just want to do some investing so that I can perhaps scale-back the travel that I have to do.
3Tees said:
If it was a $400,000 home, with $300,000 first mortgage, which would be the maximum amount someone could owe to sell at your highest expected discounted price, then YES, I would lend them $10 - $20K as a second mortgage so that they could buy that furnace, pay off some loans, and sell the property at market value. Believe it would be a very safe and secure loan. You don't agree?
I’d make a quick $1000 from the loan, the real estate agent I set them up with would kick me back another $1000. The old couple would be happy with selling at market value and having more money available to help them through their problems. Thinking about this, if you do find someone in this situation, maybe you could have them call me
True, the bank does not officially OWN the house, however if they have extended a mortgage or line of credit to the owner, they have secured the debt by registering a lien against the property, thereby protecting their interest. The only risk the bank has is that there is very little owner equity in the property and the property may have to be sold at or near the value of the debt, which once you add in costs (legal, real estate, carrying) can translate into a loss for the bank.hairyfucker said:
When the property is sold, the first guys to get at the money are the lien holders. Every land transfer has to go through the Land Registry Office by law. Usually this is why people get real estate lawyers involved (who by the way have the highest incidence of conviction for various frauds btw, so be careful.). The lawyer does the title search and checks for liens before you give anyone the money and takes care of ensuring that any liens are cleared.
As to Contractors being the most informed as to code, well, having been working in the heavy construction industry for 25 years or so, I can tell you that 90% of the Residential Contractors out there don't even own a building code. (Always a good check for that Contractor you are thinking of hiring - "Do you own a copy of the 2006 Ontario Building Code?")
Now we're talking (or burning with gas). I agree with half of what you say. I believe that there are definitely institutions who would grant a second mortgage in this situation, under these circumstances. So if there are homeowners who get those loans, they would not be of interest to me, or in my market. So be it.KBear said:If it was a $400,000 home, with $300,000 first mortgage, which would be the maximum amount someone could owe to sell at your highest expected discounted price, then YES, I would lend them $10 - $20K as a second mortgage so that they could buy that furnace, pay off some loans, and sell the property at market value. Believe it would be a very safe and secure loan. You don't agree?
I’d make a quick $1000 from the loan, the real estate agent I set them up with would kick me back another $1000. The old couple would be happy with selling at market value and having more money available to help them through their problems. Thinking about this, if you do find someone in this situation, maybe you could have them call me
However, I don't think it is a safe and secure loan - that's why the interest rate is so high, and I don't think they're so readily available to people who are on shaky ground to begin with. Second mortgages are very, very risky and we can clearly see why in this situation. The applicants have redlined their mainstream credit. And in the original scenario, I also mentioned that they owed consumer debt on their credit cards, so these people really are a risky proposition, especially because they've been in very bad financial straights for the last few months. Also, while they say that they'll fix their furnace and sell their house with your money, you can't compel them to do this. They could just as easily pay their credit card bills or pay the second half of their kid's private school tuition, or something like that. Again, not so safe in my books. Further, given that the real estate bubble could burst, and housing prices could fall, a lender may be very reticent to lend more than 80% of the value of the house. I mean it is unlikely that values would fall 20% in one night, but why do you think there is generally an 80% cap on equity loans (which by the way, I have consistently been saying I can get a house at between 60% to 80% of the value - now you know where that 80% comes from).
Anyhow, what you are describing comes very close to another type of desperate seller investment tactic - a guy says "I'll pay your mortgage for six months", but the agreement involves a contract that would require the home owners to sell the house to the lender at a certain price if payments aren't made. I know that's not what you're proposing, but it is similar in concept, and it may compel the borrowers to do what they say they are going to with the cash.
Look, we can go back and forth - bottom line - there aren't tens of thousands of people in this situation, you need to know where to find them and you'll look through 10 deals before taking one that is right (or one where the people don't mitigate themselves out of their situation as you're sorting through the agreement of purchase and sale).
We got started on this thread because of flipping. One of my points is that when people buy a decrepit house and renovate it and flip it, they are paying market value for it - the only reason it costs less than other houses is the shape that it is in. They have to put in a lot of money and time to get it to where they can make a profit - and because they've paid market value for a decrepit house in the hopes that their improvements will make them money, they really have no margin of error, and that increases risk. What I'm saying is that there are other ways of finding houses that are truly under market value.
See Jimmy Boy (quoting Finnigan from TOS "Shore Leave"), the original scenario is that the couple is already two months behind in their mortgage. So you say you get renewed "cause I make payments" - guess what, this couple isn't!!! So sure, they have equity (the second part of the equation), but they're not making payments (and to quote you above "All they care about is that I'm paying my mortgage"). I don't think this couple will be getting mega-Quatloos (The Gamesters of Triskelion) from any bank in this universe. They could however, try a parallel one, such as in Mirror, Mirror, but they may get beheaded by the Bearded Mr. Spock for not making payments.james t kirk said:
I mean, running this through the computer banks, you have stated an "AND" condition (I make payments AND I have equity). In my scenario, only one condition is met, and not the other - since the scenario proposed doesn't meet both conditions, I think the computer would reject your proposition.
As for your other scenario about me really screwing over people, such that they wind up drinking Romulan Ale on Reisa on my money while I'm left holding a $400,000 mortgage that I can't pay and a house that the bank owns. First, we discussed my typo. Second, I really don't follow your logic (perhaps Spock should get involved), but I will say that I'm not committing title fraud in any way and that any and all transactions will be properly "closed". That means I, and the vendors, each have their own independent lawyers (who may also act for the respective lenders as well - typically parties to a real estate transaction sign a document that says the lawyer acts both on their behalf and behalf of the financial institution). If there is not enough money on the sale to cover the vendor's bank's equity, or if there are any other issues why a deal won't close on behalf of the vendor's financial institution, my lawyer simply would not "transport" my money over to the other side - and the deal would remain unclosed. Is there something here that is not on my scanners and that I may be missing?
In fact, I believe you said this yourself here:
Oh - you also assume that Shlep (is that a character in the Trouble With Tribbles, or was he the navigator in Enterprise, I can't remember) is mortgage free. I'm not assuming that - and I don't think a mortgage free person would ever be in this situation. In fact, only a small proportion of Canadians are mortgage free. A mortgage free person would be an idiot to find themselves in a desperate sales position. I'm talking about the guy that has maxed-up to 80% of his limit, has not paid his mortgage for two months, cannot get any more loans based on equity and has consumer debt up the place from which the Captain's Log comes out of.james t kirk said:
I know that my posts are as long as Starfleet Regulations but read them before you act like the evil Kirk split by the transporter in the Enemy Within.
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I recall watching the host on one of theses shows putting own wood panel flooring wrongly. He didn't remove the baseboards before he started laying the flooring down!
I've done a number of floors for family members and the first thing that has to be done is removal of the baseboards so that the edge of the panels is around a 1/2" from the base of the wall. That way once the flooring is down that gap will be covered once the baseboards (which are usually 1/2" thick) goes down. Adding a 1/4" quarter round at the base of the baseboard also helps if the gap is slightly more than 1/2".
I've done a number of floors for family members and the first thing that has to be done is removal of the baseboards so that the edge of the panels is around a 1/2" from the base of the wall. That way once the flooring is down that gap will be covered once the baseboards (which are usually 1/2" thick) goes down. Adding a 1/4" quarter round at the base of the baseboard also helps if the gap is slightly more than 1/2".
You can use shoe molding to cover the gaps on the new floor..........Also if you use hardwood you can get the flor tighter to the wall.SamSmith said:
You don't want the floor to be tight to the wall. You'll only end up having to pull up all the baseboards because that gap needs to be there so the air under the floor can escape. Otherwise the flooring will buckle.
I learned this the hard way AFTER I did a family member's whole basement.
I learned this the hard way AFTER I did a family member's whole basement.
Basements are the extreme case for wood floors....You need to do a bit more prep.........one way is to put down a vapor barrier followed by a frame and sub floor.........if you decide to go directly to the concrete you may want to consider using a roof coating tar and ceramic.SamSmith said:
Ok, so now the most discount you could hope for is a bit less then 20%.3Tees said:
That is a big difference from the up to 40% discount you were talking about earlier.3Tees said:
I'm sure these deals do exist, but so do the big winning lottery tickets. I would bet that there are more winning lottery tickets then 40% discounted home sales.
