Seller has Low Equity or Negative Equity

Here are steps of what to do when a seller has no equity in a property. IE they are “under water”

Process

  1. When a seller has no equity, the key is figuring out what exactly their options even are because more often than not, if there is no equity a cash offer will not work.
    1. If they owe significantly more than the property is worth, there is not much you can do without connecting with the bank.
  2. Verification questions to ask:
    1. Do you know exactly how much you owe including penalties and fees?
    2. How much money do you need to move on from this property?
    3. Have you discussed your situation with your lender?
    4. What are your next steps after this property is sold?
  3. If they owe more than the property is worth at ARV:
    1. If they owe significantly more than the property is worth, there is not much you can do without connecting with the bank.If they owe slightly more than it’s worth, Subject To can be a potential option assuming favorable terms on the loans.
    2. Best option in this case is to pursue a short sale which is outside the scope of this document, I recommend you inquire with a Short Sale expert for assistance.
  4. If they have low equity and limited ARV Upside.
    1. Ask what their next steps and plans are once the property is sold, use this question to discover if their remaining equity will be enough for them to move on.
    2. If YES, Subject To with a down payment is only real option as long as it is beneficial on investor side to meet appropriate Cash on Cash or wholesale numbers. Cash purchase is typically not desirable with no way to recover or force equity episode on the deal to recover the cash investment.
    3. If they need more than you can provide with Sub To + Down Payment, then a deal may not be possible
  5. If they have low Equity, but significant ARV Upside
    1. Ask what their next steps and plans are once the property is sold, use this question to discover if their remaining equity will be enough for them to move on.
    2. If YES, move forward with Cash Purchase or Subject To offer depending on which is more mutually beneficial.
    3. If NO, Subject To with a down payment is only real option as long as it is beneficial on investor side to meet appropriate Cash on Cash or wholesale numbers.
    4. If they need more than you can provide with Cash Purchase or Sub To, then a deal may not be possible.