We buy houses even when the mortgage is more than the house is worth. This is a creative strategy we use to help home owners who have a property they want to sell, but owe more than the house is worth. This house in St Tammany parish is a good example. The owner originally reached out to us looking to sell their house for cash. It needed some repairs and they wanted to sell it As-Is and not have to make the repairs. We couldn’t end up helping them because what we could afford to pay wasn’t enough for the homeowner. They ended up listing it with an agent, but 5 months later they called us again as the realtor wasn’t able to bring them any acceptable offers.
When we dug a little deeper with the owner we realized what the problem was. The amount they owed on their mortgage was more than we had offered. In fact, with the repairs that were needed the amount they owed on the mortgage was even more than a home owner who would use bank financing would pay. This made it really hard for them to sell because no one wants to sell their house and then have to bring money to a closing. In cases like this we can often use the existing financing in a way that allows us to pay over the market price for a property.
You see, when we buy a house with our own cash, their is an opportunity cost involved. That is, when our money is tied up we miss out on other opportunities to have our money making money. So in cases like this where there is already a loan in place, we can often pay more for the house by leaving the financing in place. You see, if you owe $100,000 on your mortgage and we paid you $110,000 for your house, then at the closing the attorney would take the $100,000 from the sale proceeds to pay off the note and remove the lien from the property and you would get what is left. So in this example we brought $110,000 to the closing and you pocketed the $10,000 that was left after the mortgage was paid. When we leave the financing in place for the same example we would buy the house for $110,000 but instead of bringing $110,000 to the closing, we would bring the $10,000 that goes in your pocket and leave the $100,000 note in place with the lien still against the property. We would then start making the payments on the note. This means you get the same amount of money in your pocket but we don’t have to put as much of our money in the property upfront. This allows us to use our cash to do more deals. So maybe for a house that we could only afford to pay $70,000 when it is an all cash offer, we could afford to pay that $110,000 when we leave the financing in place.
We use this strategy a lot when someone is upside in their mortgage and needs to be bought out of their property above market value. Sometime the mortgage might be right at market value and the seller still needs a deal like this because once you factor in realtor commissions and repair costs the amount they end up netting is below the mortgage. If you would like to discuss how these type of deals can work we would be happy to talk you through it. Or perhaps you just want to sell your house as-is for cash, just reach out to us and we would be happy to discuss your situation and what options we have to buy your house.