Colli Real Estate

How do you calculate equity in preforeclosures in order to make a proper offer?

Q: How do you calculate equity in preforeclosures in order to make a proper offer? What is the easiest & most accurate way to figure the equity on a home in order to make an intelligent offer? Naturally, prefer not to “just ask” the owner since, for obvious reasons, is likely to be less-than-accurate (perhaps financial troubles, including liens, hidden mortgages, & judgements. Ideally, wud love to know a website or 2 from which I could crunch the numbers. As long as I know what’s been paid down and what the junior mortgages and any liens are, I can help others, and at the same time, maybe take home my ten percent. Thanks, in advance, for any thoughtful answers, prefer from those who are truly experienced in real estate investing. Kind regards.

You will have to make a few assumptions to figure it out.

First thing to do is pull a Comp Report on the home. Then ask you title company for a property profile. Once you have this information you will know who the owner’s owe money to and how much they originally borrowed.

Now comes the estimating. You will have the approximate date the loan was originated, but not the terms. So you can assume they did a 30 year fixed loan on the first and a 20 year loan on the second (if they have one). You will have to do some research on what the average loan rate was for the month they originated the loans. Once you estimate this you can run through and amortization of the payments and figure out approximately what they owe. If you are good in Excel this will only take about 10 minutes to figure out.

FYI this is the wrong approach to making this type of Offer. The better way to do it is from a seller’s standpoint. You have to figure out what you can sell the house for, back out 10% for closing costs. Then you have to figure your 10% profit margin, then estimate how much money it will cost to make it a turn key property. Then back out another 5-10% for unforseen costs.

Good Luck

Crunch the numbers

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