SO not sure where to put this. Hopefully I get some responses.
I’d like some advice as to whether this potential purchase is worth it.
A friend of the family owns a home in a very nice neigborhood. He has been going through the foreclosure/auction process for years ans years. The house currently has 3 different tenants and he collects $6k from. He has never had a problem with the tenants oaying for the last 8 years.
Another friend of our family is in the real estate/mortgage buisiness and is putting together a hosrt sale contract for us to present to the bank.
We have to out down roughly $65k to get the mortgage. Problem is we really don’t have it. My wife is thinking about taking it out of her 401k( she is not working anymore) but then she will have to pay the ~33% penalty. I have about $800k in my 401k but I can’t take out a loan right now.
Well the house has been appraised for $700k in the condition it’s in now and if fixed up( sink about $150K) it would be worth about $900k. THe taxes are about $18k year. So the short sale offer we are presenting is $440k. Is it worth it to take the money out of the 401k to buy this home at that price? Not sure what we would do with it yet. Keep it and rent it, sell it right away although that might be a problem with renters in it? Not sure. Any advice would be great. Thanks.
How old are you and your wife? How handy are you at fixing up the house? Since your money is invested in a 401k have you looked at the 55 rule?
Andy
What state is this in ? Tenants’ rights differ by state. What do the leases say ?
The short sales I have bought had nothing to do with a mortgage - just what the bank was willing to take to get the property sold. That you have to juggle to get the down payment means it’s not a good choice to me. A property is only worth what someone will pay for it and usually not until the wire hits my account after sale.
House in on Long Island in NY.
No leases in place.
My wife is 43 and I’m 49. I am definitely, bro in law electrician, best friend is a plumber and someone we know for long time is a carpenter.
What is the 55 rule?
Thank you very much.
That is not going to help you. You need to be 55 years old, retired, money needs to be in a 401k, not an IRA. If the requirements are met you can remove the money without a penalty. So if you want early access to the money later do not move it into an IRA. Best to keep it where it is.
Andy
Ok so buying this house as I laid out is not a smart financial move?
If you are looking at the house as an investment, yes. If you need it as a place to live I suspect there are other options including where you live right now.
I agree with Potter. Taking the penalty on your 401k and then having this house to fix up is going to be a real struggle for you. The penalty alone is going to eat up your profits for at least a year or two.
Andy
- No way bank is accepting that super lowball offer in this current market. You are wasting your time. Bank could simply foreclose and turnaround and get market value.
- You don’t have the liquid cash so don’t do it. I am in the mortgage business and see this all the time, and would estimate a minimum 50% of time people buy a house they shouldn’t for speculative purposes; turns into a money losing endeavor.
- You are raiding your retirement for a highly speculative investment. What if tenants do not move out for the renovations you want to do? What if they trash it on way out? If you could borrow 65k, would you pay 33% interest rate for that loan? That is basically what you are doing in taking out of retirement and paying the IRS. If you are raiding retirement for the down payment, where are you going to obtain the 150k for improvements?
There is a reason why current owner is behind on payments. And something is missing as why isn’t just selling the home right now for 700k?
Not wasting my time.
He owes $950k on the house.
If I get it for $450k I will pull the trigger.
You are dreaming. Why would a bank sell you a home 250k under market value? This is not 2008 when homes were not selling and values were dropping. Today it is the opposite: homes are selling above listing due to a shortage of housing.
Before a bank accepts a short sale, a bank will do a BPO (broker price opinion) and when it comes back that it is worth 700k, they will reject your offer.