Lets say you a live in a nice $100,000 house somewhere in the suburbs of Phoenix, AZ. So far so good. Then one of your neighbors with a house similar to yours run into financial troubles, Fannie Mae foreclosed on it and our investor decided it will be a smart investment. Long story short, Fannie Mae is selling it to him at $60,000 and few months later our brave investor flips the property for $80,000 earning 30% profit. Everybody is happy, even the new owner got a great deal. Do you think your house is still worth $100,000? Nope, with a market sale next door at $80,000 your house price is $80,000 or even less now - remember the $60,000 investor sale from earlier? Say you need to move and want to sell your house now. Even if you find a buyer willing to give you full $100,000 his appraisal will come back at $80,000 or less and his bank will not give him a loan for more than this. Congratulations, you just lost $20,000 without even moving a finger. So you still need to sell your house but you bought it with 3% down and still owe $97,000. What are your options? Not much at this point, you can pay $17,000 plus sales costs out of pocket to cover the difference, you can try to do a short sell or go into foreclosure yourself. The last two options will trash your credit history and you will not be able to buy a new house for many years. Send a nice letter to the investor and his Fannie Mae sponsor, I am sure they would love to hear your story, you know their names.
Monday, July 25, 2011
Why should I care?
I got a legitimate question yesterday. So what, an investor bought a bunch of properties, Fannie Mae should be happy it get rid of them. Why do you think it is bad?
Lets say you a live in a nice $100,000 house somewhere in the suburbs of Phoenix, AZ. So far so good. Then one of your neighbors with a house similar to yours run into financial troubles, Fannie Mae foreclosed on it and our investor decided it will be a smart investment. Long story short, Fannie Mae is selling it to him at $60,000 and few months later our brave investor flips the property for $80,000 earning 30% profit. Everybody is happy, even the new owner got a great deal. Do you think your house is still worth $100,000? Nope, with a market sale next door at $80,000 your house price is $80,000 or even less now - remember the $60,000 investor sale from earlier? Say you need to move and want to sell your house now. Even if you find a buyer willing to give you full $100,000 his appraisal will come back at $80,000 or less and his bank will not give him a loan for more than this. Congratulations, you just lost $20,000 without even moving a finger. So you still need to sell your house but you bought it with 3% down and still owe $97,000. What are your options? Not much at this point, you can pay $17,000 plus sales costs out of pocket to cover the difference, you can try to do a short sell or go into foreclosure yourself. The last two options will trash your credit history and you will not be able to buy a new house for many years. Send a nice letter to the investor and his Fannie Mae sponsor, I am sure they would love to hear your story, you know their names.
Lets say you a live in a nice $100,000 house somewhere in the suburbs of Phoenix, AZ. So far so good. Then one of your neighbors with a house similar to yours run into financial troubles, Fannie Mae foreclosed on it and our investor decided it will be a smart investment. Long story short, Fannie Mae is selling it to him at $60,000 and few months later our brave investor flips the property for $80,000 earning 30% profit. Everybody is happy, even the new owner got a great deal. Do you think your house is still worth $100,000? Nope, with a market sale next door at $80,000 your house price is $80,000 or even less now - remember the $60,000 investor sale from earlier? Say you need to move and want to sell your house now. Even if you find a buyer willing to give you full $100,000 his appraisal will come back at $80,000 or less and his bank will not give him a loan for more than this. Congratulations, you just lost $20,000 without even moving a finger. So you still need to sell your house but you bought it with 3% down and still owe $97,000. What are your options? Not much at this point, you can pay $17,000 plus sales costs out of pocket to cover the difference, you can try to do a short sell or go into foreclosure yourself. The last two options will trash your credit history and you will not be able to buy a new house for many years. Send a nice letter to the investor and his Fannie Mae sponsor, I am sure they would love to hear your story, you know their names.
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