OfflineHere's the scenario, the owner of the house next door to my dad informed my brother that he wanted to sale the house. My brother told him that he wasn't in the market to buy but he knew of someone who was...ME. I called the gentleman and spoke with him about the property. It's a single family 3 bedroom 1 bath with an unfinished basement. He's owned the property since 1984 and by his word it's "free and clear",( that I will clarify). He presently has a tenant in it and receives $500.00 a month rent. He's asking $25,000 for the property, I've seen the outside many of times but have yet to see the inside. He's wanting to sell because of his age and possibly will be looking to sell his primary residence also. I asked him if he would consider "seller financing" the property to me and he said no he would rather be paid in full, let me take over and walk away. The tenant has been there for a long while, she has young children who attend school nearby. With my dad living next door and me visiting on a regular basis I can say with confidence that the tenants are fairly good ones. My problem is, my credit wont allow me to go the conventional route and I don't have anyone I can borrow the money from. My plan once the property was secured in my name was to use one of Dean's strategies where he found a banking institution that didn't require seasoning and finance the deal using the equity from the property to make some minor improvements and pocket the rest. The new note (mortgage) and the initial investment ($25,000) would be paid by the tenant's monthly rental income if the numbers are right. I just could use some assistance with finding the initial investment. If the property yields a break even cash flow, I'm good with that, but if the numbers reflect a negative, I'll walk away. My present monthly income wont allow me to assist in any way. Are there any suggestions for this deal?
lbrown
What are the taxes? Does tenant pay their own utilities or owner? Find that out first so you can see if there will be cashflow. I stay away from sfh's because it is hard to cashflow and if tenant moves out and you can't find someone right away you will be paying out of pocket. But find out everything else, and get in the house to see it. Try speaking with the seller in person when you go to see the house, ask for financing again for one year and see what he says. Never look at no as a no.
Jeremy
This train, Dreams will not be thwarted
This train, Faith will be rewarded
Big wheel roll through fields where sunlight streams
Meet me in the Land Of Hope And Dreams
Bruce Springsteen
I'm with you Ibrown. I am in a similiar situation. The market here is very soft. This makes getting the seed capital for the investment. I just check my credit report. Ouch! The good news is that I have always paid my bills. The bad news; My score is still less than 600. I am trying to be creative with financing............Maybe I should just embrass my inner sales person and realize that I must sell I can make any real money, right?
Stephen Farley
Thanks for your reply Jeremy, the tenants do pay their own utilities and the taxes I found out are a little over $1200 a year. I've been trying to put together different strategies in an effort to come up with one I think he would probably accept. And what I've come with is the fact that I'm not him, so how ever could I guess what he would accept. What I'm going to do is to be proactive and follow your advise and contact him to arrange a showing and then I can present my offer in person. Would it be wise to have everything written down on paper? It's not a contract, just an itemize read out of an offer. Something of a "letter of intent".
lbrown
Whats the Fair Market Value (FMV)? Important
Have you thought about doing an assignment of contract (no credit, no income , little to no money needed )
Find cash buyers and assing it to them or collect a bird dog fee...
But u will need to know the FMV and and your numbers...
What about a sandwich lease with an option to buy? Also have you put the numbers down in front of your father? Perhaps he would like to partner with you. You could borrow the money from him at a higher rate than he is getting on his CD's. Another option is to lock it up and assign it to another buyer. You could make a few thousand for your trouble at the very least. Or bird dog it out to make it easier. So many options you have. You already have a relationship with the owner and the added bonus of your father living close by. Relationships are so important.
But here is the most important advise I can give; don’t get paralyzed with all the questions. Do your numbers (do them again) and if they all add up, negotiate a great price, lock it up. Then you can figure out which options are best for you.
"Faith is taking the first step even when you can't see the whole staircase."
~ Martin Luther King, Jr. (1929-1968)
www.beaconinvestorsgroup.com
find out the FMV on it, add up your estimated repairs and deduct that from the FMV offer. If your taxes are going to be 1200 a yr, that leaves you with 450, minus your mortgage paymentfrom that, that will tell you your cash flow. also I would put a % of the cash flow aside for repairs and to build a nest egg. Down the road you may have to carry the note because of a vacancy or need money for emergency repairs. you can also raise the rent to the existing renter and justify it because the original owner didnt have a mortgage.
upgrading the home is another reason to justify the rent increase.
Just some things to consider.
good luck
Richie
Thanks guys, all of your responses were full good advise. I will follow that advise and continue to move forward. The best thing is that I get to add them to my arsenal. Hay, HAPPY NEW YEAR everybody, 2010 is going to be a good one.
lbrown