mcgraw_wv

I know the market stinks right now, and the economy and all the doom and gloom, but I want to pick up a property in our neighborhood that is 100k less than our home, it's in pre-foreclosure...

So I feel it's a great opportunity to get a bargin deal and the home is just down the road so it's easy to rent and maintain...

Just called a bank, and the requirements are pretty much through the roof right now to get a loan on a second home/investment property requiring 25% down + closing costs which is just nuts...

So I was thinking, what is the process of simply taking over payments on a home, is that possible? Does it happen? I mean their option is to go into foreclosure, or get out scott free... I've heard people just taking over payments, is that just a old wives tail, or does it really happen, and is their closing costs and all that associated with it?

Does anyone have any advice in this situation?

BelichickFan

Unless things have changed, to "take over payments" you need to do a Formal Assumption of the loan. Which includes the normal qualifications through the lender, etc. An arrangement between you and the owner eliminating the lender wouldn't change who is responsible for the loan or who who have the equity if/when the market picked up.

mcgraw_wv

So to sum up what you just said in easy terms, most likely I won't be able to do that?

Real World

I'm pretty certain taking over the payments would be a bad move financially. I'm assuming alot here, but my guess is that the note on the home is substantial, since the vast majority of homes in default are of the funny money kind (interest only's), or due to massive overvaluation in price. I don't know what the market is like in Florida, but I do know it's a roller coaster state when it comes to RE. My guess is that there is negative equity in the home (pretty certain about that), which means close to zero principle paid on the borrowed sum. Taking over the payments, while it would save you from having to come up with the 25%, would mean that you are going to assume the overvalued price, over the term of the current mortgage. I wouldn't do that. All that said, I think you should wait a little longer to buy. The market is going to get worse, and if not, it certainly will not appreciate in the near future.

BTW, is it a multi-family? What's the asking price, what was it sold for when the current owners purchased, etc.

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
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mcgraw_wv

Well the trick is, we have someone that wants to rent from us right now, so were kind of looking for local home and we have a built in renter ready to rent it...

Your right about taking over a upside down property, forgot about that, and that would be done.

Good call...

and It's a single family home.

BelichickFan

RW knows more than me, it's been a decade since I've had to deal with such things. But "taking over payments" still had the other guy's name on the loan unless the lender agrees to take it off; for which you would have to do a Formal Assumption where you assume his loan and then "take over payments". Whether you can do it depends on the lender, if they have a brain they would prefer that to a possible foreclosure but sometimes they have rules.

Real World

I'd advise against purchasing a single family home, for use as a rental property, or investment. Of course, the numbers would matter, so I'm speaking generally here. If the price were low enough, and the rent high enough, it could be worth it if you intend to flip it once the market moves upward. I just don't think the investment is worth the reward at this point in time, especially if you have to put 25% down. At $100k for the home (keeping #'s round), it would require a minimum $25k immediate investment. Over 30 years, the remaining balance would mean a mortgage payment around $450 before taxes and insurance (always high in Florida). When you add in for potential repairs & maintanence, and factor in vacancy, I'd guess the numbers wouldn't look so pretty. Now, if you could guarantee yourself a clean $200-300 profit at the end of each month, then you'd be looking at 10-15% return on investment annually, with the potential to flip it for a more substantial profit down the road, when the market rebounds. My only problem with this is that the market is not going to rebound for some time, and the capital improvement risk is then elongated, which could seriously affect the small margins on single family homes. This would be stuff like replacing a water heater, an AC unit, a boiler, a roof, etc. Stuff that costs thousands to replace, and/or repair.

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897

FreeTedWilliams

Almost all mortgages have a clause in them clearly stating that the homeowner MUSt occupy the home, and notify the lein holder if that status changes.

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mcgraw_wv

Real World, the reason why we feel this particular property is a smart move is becuase all the other homes in our neighborhood is selling for 65k more than this pre-foreclosure price, even in a down market, this listing is well below the other homes.

In this economy, I don't trust any avenue of investment other than CD's, and real value property. ( Gold, Land, Home etc... )

I want tangible value, not stocks ( confidence value ), nothing based on confidence, I want real value.

Real World

I'd actually argue that property, is as tangiable as it gets, and even more so than gold, or a CD, since you physically hold neither. If you don't mind me asking, what is the price on this property, and what type of rent would you be expecting?

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"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him."
Leo Tolstoy, 1897