Gettin 'Unstuck' on That Unsold Real Estate Property
Investors and rehabbers fret a lot, and these days there’s a lot to fret about. In most major cities prices have "adjusted" downward and sales have certainly slowed. And, when we do get an offer, it’s a “low ball” offer with little basis in Our Reality. (We know the value of our product is going unappreciated.)
Meanwhile we see REO’s selling at reduced prices not seen in years. So there are abundant opportunities for those grabbing the initiative. Particularly for investors.
What to do then, with a rehab languishing on the market? Well, think about selling it to yourself! Investors buying into this market will reap huge profits as the market recovers. Where do we get ‘stuck’?
The problems are often technical, but can be difficult to overcome. Our advice to investors and rehabbers is to incorporate at the earliest opportunity. There are very good liability and income tax reasons for doing this.
The problem is: If we decide to “buy the property ourselves” for our own long term investment, or just to wait out the current market, we find most lenders refuse to lend to a corporation. These lenders are not being mean or arbitrary; there are Fannie Mae and Freddie Mac prohibitions against lending to corporations that bar such loans (which do not apply to banks which may choose to “portfolio” such loans in deference to a valued customer).
Less astute loan originators may simply suggest “buying” the property from the corporation. Not a great alternative: You’ll need to come up with a down payment where, more than likely, these funds are already invested in the property.
What is needed is a refinance, but by what entity if the property is in fact owned by the corporation?
In discussing this with Program Member and loan officer Nathan Blandin, he suggested conveying the property to the individual investor/owner (who indeed may own the corporation) by Quit Claim or Warranty Deed, “for $10 and other good and valuable consideration”.
Properly recorded, this document will generally put the “new” owner in position to refinance based on the appraised value of the property. In this way, the investor’s equity is recognized and, up to normal 70-85% LTV ratios, available to serve as the ‘equity’ necessary to secure the financing. #
© Philip Elmes. For more about Phil Elmes and the Urban Rehabber coaching program go to: http://www.UrbanRehabber.com