How Do I Sell A House With No Equity?
Question: How Do I Sell A House With No Equity?
Dear Joe, I’ve got a seller who owes $165k on a house that is currently worth $170k. If I list the property AND I sell it for full price, he will have to come to closing with nearly $10,000. He wants to use me, but he just can’t afford to pay my commission. I even thought about listing it for free, because he’s a past customer, but he couldn’t even pay the coop fee if another agent brings in the buyer. What do I do?
Linda from Austin, TX
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Read Transcript for “How Do I Sell A House That Has No Equity?”
It’s tough to sell a property when things like high closing costs become an issue. Here’s a solution using “Subject-To” deals in those kinds of situations which you can use.
“I’ve got a seller who owes $165,000 on a house that is currently worth $170,000. If I list the property AND I sell it for full price, he’ll have to come to closing with nearly $10,000. He wants to use me but he just can’t afford to pay my commission. I even thought about listing it for free because he’s a past customer, but he couldn’t even pay the co-op fee if another agent brings in the buyer. What do I do?” – Linda from Austin, Texas.
Joe: This is a tough situation and its happening all over the country right now. People are running into this situation everywhere, and actually this is something that happened to me back when I was a realtor.
Joe: I was a realtor for about 7 years. I was also a top producer and we did a lot of listings and had a lot of sales. We ran into this situation a lot and I didn’t know what to do with it either. We’d go to the listing appointment, we’d think we’d have something really solid going and they’d want to list their property, but then when we told them that they’d have to come to closing with 10 to $20,000 just to sell the property (and I know in more expensive areas it’s even higher than that) it made it impossible for us to do that.
Joe: So some of these techniques for investors that I’m using now creates different opportunities. Here’s one of the things that you can do in this situation: let’s say we’ve got this property and $165,000 is what they owe, and it’s worth $170,000. They want to get rid of that property. They want to buy another property. A lot of times, what these folks do is sell it to us.
Joe: By the way, if you go to for sale by owners and said, ‘I want to list your property,’ they really won’t want to talk to you, but if you say, ‘I want to buy your property,’ then it changes everything; it changes the whole dynamic of the situation because that’s what they’re advertising for. Now, if you’ve got one that already wants to sell and they trust and they want to work with you and they need to get rid of that property, one of the things that we can do is buy it from them and buy it “Subject-To”.
Joe: We don’t want to use our credit. We don’t want to use any down payments. We don’t want there to be any risk in the deal. Those are my criteria when going into this. Some of you know the story and the experiences that I went through in California. I don’t want to repeat those bad experiences again, so what I want to do is make sure that it’s going to be safe. I’m not going to have any money and I’m not using credit and don’t have any risk in these deals.
Joe: One of the ways that we can do these is buying the property subject to the existing loan, which is the very basic concept that they’re going to deed us the property and we’re going to start making payments on the loan.
Joe: We’re not qualifying for the loan. We’re not having our credit checked. We’re not giving them any down payment. In fact, we’re not going to ask them to make the next month’s payment (because interest is paid in arrears, so if they pay on the 1st coming up, that’ll have covered the interest for the previous month) and it’ll also give us a month to go out and find either a tenant or a lease option buyer, so it’s a very safe way to do this.
Joe: You can also set this up so that you buy it on a purchase agreement without transferring the deed and give yourself 90 days to find a buyer during which they can continue to make the payments, and then when you find a buyer then you can have it close and have it transferred over to you. When you get a little better at doing this, you can just go ahead and have them do it and have them transfer it over to you and then you’ll own the property.
Joe: So how are you going to make money on the deal? (Because that’s the whole point here, right?). One is owning a property like this. First of all, you’ve got a little bit of equity in it. You didn’t have to put a loan in your name. You didn’t have to go out and get credit. You didn’t have to put any down payment down. You didn’t have to pay any closing costs. This is a really beautiful way to buy property.
Joe: By the way, if you’re wondering if buying subject to the existing loan is legal, it is. Look on your HUD statements. It actually says “Loans taken subject to”. There’s a line for that. It’s right on there on the HUD statement. It is legal to do it. There are some things like due on sale clauses, insurance issues and things like that which I’m not going to get into on this quick tape, but that’s one of the things that you can do with this type of deal.
Joe: There are other things that you can do as well like put a lease option buyer into the property. I’ll get into those in some of the later videos that we’re going to talk about as we go.
Joe: One of the things that I found out is that when a real estate agent would get involved in my program and start implementing these techniques and marketing ideas, strategies and investing techniques I teach, their real estate agency business would explode; their commissions and sales would go way up. I hope that helps.