1/4 of a Million dollars and Im scared. Need help! ***LOOK HERE***

Am I right, this seller will hold the mortgage without a down payment?
Kevin, it sounds like you are in a partnership. He collects the rents and pays you the positive and you do the work around the prop, including evictions. But if I am reading his terms correctly, if the rents are short for the month, you get nothing. So who goes and collects the late rents?

I don't know about this one. Jeremy and I always look for owner finance in our FSBO deals, and we get control of the property always. There is something to be said about being able to make the decisions on your own and not having someone looking over your shoulder.---It is a gut call my friend....Jan

Jan,

Yes if the rents are short for the month I not only get nothing but I owe... My concern as well to all the above is what if something breaks...What if..this happens or that.

If the rented units stay rented then Im golden (I hope) but the contract seems like a bunch of mush because I dont understand all of it.

So to you Jan I ask (Or anyone else that cares to answer), if it was you in my shoes, being new and just starting out, what would you do?

Thanks for the reply Jan, I appreciate you taking the time to respond.

Kevin

this is just for me. their is no way I would touch that deal, It would in no way be a win win for me, you are only cash flowing a little over 50 dollars a unit. tendent miss one month will take over a year to get your money back. And that does not include any maintenance or grass cutting etc'

Randy

If I were talking to my partner Jeremy right now, he would say jump on the deal. We have a funny knack for knowing what each other is thinking.
If something breaks, it must get fixed or you will end up with a renter holding back some rent. In our case, we have $$$ in a repair account so we never have to go into our pockets to make repairs, so I would ask the seller on this point.

If you can take this guy holding the strings for 3 or 4 years, take the shot. But be sure you can re fi or out right by at the end of the balloon. The price might be too high to refi and then you will only get a % of LTV. So I think you should sit down and do more number crunching. Hope this all helps you out and it could be your first deal...Jan

Randy is right about the cash flow amount. It is not a lot of $$$, especially when your just starting out and hoping that nothing breaks. Then there will be a problem.

Leave it to Randy to find something I left out!!!!!...Jan

So glad to see you back, Now

you can bust my b---- for thead jumping, I have broad shoulders and I can take it.

Randy

Randy and Jan,

Thanks for the input, I really appreciate it especially coming from the 2 of you with all the deals you guys have done. I know I am eager to get my first deal done but the numbers scare me. I have never owned anything over 40k and that was a truck, lol.

Does the contract make sense though? Is he being fair?

Kevin

It depends which end you are on, If I was selling its great. IF I am buying its not so good for me. Why would I want to take this kind of change with 4 units and so little profit. I get better cash flow on one house. Remember it has 1 water heater 1 AC and 1/4 of the windows.

That's crazy to get into an investment of 250K for for a cash flow of less than $ 250/month! A house we bought last month, we paid 41.5K, are getting $ 700/month rent, giving us a positive cash flow of $ 400/month...& in 2 yrs the tenants are buying it for 68K. Besides, what happens to your cash flow if you have vacancy or repairs. I think this seller is one sided
& I would walk (quickly) from this deal. There are plenty out there, choose carefully, especially in the beginning.

if you took that deal

If it doesn't feel right, its not

I am so glad I came here and talked with all of you before I did anything major. I have not signed anything as of yet and I think I will send him an email explaing my concerns and just walk away. Thanks for all of the information and support.

Kevin

I agree with Randy on this one. That is not enough money for me to feel comfortable with and not having control of the property is even worse.If you think about what you replied to Jan, You are saying you will lose money if someone doesnt pay their rent. What if 3 people dont pay/ them where are you at.
If he was willing to do owner financing and you could do some improvements to justify raising the rents like 50.00 each I would look deeper into it. but not as offered. and 8% interest in this current market is not doing you any favors either.
Personally, I WOULD WALK.This deal he is offering stinks from where i am standing jmo.

good luck what ever you do.and do your home work if you move forward.

Richie.

Thank Richie.

Think I am just going to walk, I mean at first I was like oh look at this... but now I am like uhmm, no... lol.

Thank you to everyone for the help and advice. BTW, it's my birthday and you all have just helped make it better by keeping me from making a mistake. I do fill out an offer on another home tonight though, that I know will go through provided financing works as it should... it's no where near this in cost but probably better in return. LOL.

Kevin

Kevin,

I agree with Randy and Jan on this one.

Randy straight to the point shows there is essentially no cash flow.

Jan shows that there is some lack of control for you.

Overall this is a pretty good lesson on control vs. cash flow. Which is minimal on both sides. I would aslo feel uneasy about the Seller taking rents and then paying you the difference. I would only be okay with that if the rents went into escrow.

Randy and Jan,

What's up Guys! It has been crazy with Matt so far. I am on my 3rd week right now and there is a ton of stuff going on.

Jake

Hi!

I know it's after the fact but here is my two cents.

I'm new to this business. Right off the bat I feel this would be a bad deal. You would never get this monkey off your back. IE - time is money, you would be spending to much of it here among the other things discussed.

Ron

JGreer,

Awsome insight. I didnt look at the 2 comments and put it together like that, thanks for the input.

Ronnielee,

The monkey, lol, is exactly what it would be to. Good analogy, thanks for making me smile on that one.

I feel so much better now that I have decided to walk away. I have yet to tell the seller as I am uncertain on how to word it but I will try to be as polite as possible. He may have something later that would be benneficial.

Kevin

i agree with everyone who responded.i would not take his offer BUT I WOULD OFFER TO TAKE OVER this property and get it off his hands.great advice on maybe taking control and raising rents.i would talk to him more in depth and find his MAGIC BUTTONS!! maybe he has a few mortgages and would welcome your help!! or maybe he needs to move or has another problem that you are the solution too!! ASK ASK ASK what he needs or how you can create a win win for him.this may lead to a 5-700 cash flow instead of a 200 + ????? a 4 unit is potentially a great investment as u only have 1 tax and 1 insurance bill.and 1 mortgage!!!!! take all these great suggestions and take action and i am sure u will make the right decision and feel good about it !!
good luck and congrats on being in the game !!
jay

Same Seller... Different House (Triplex)

Addendum “A”

Responsibilities of the Buyer

1. Maintain exterior landscaping of the premises
• This includes, but is not limited to, cutting grass, trimming bushes/hedges/trees, removing any unsightly debris/trash from the property.

2. Maintain exterior of building.
• This includes, but is not limited to, window screen replacement, replacement of any broken windows/doors, roof repairs, siding repairs etc.

3. Tenant maintenance calls
• Any normal and customary maintenance requests by the tenants are to be handled by the Buyer

4. Vacant unit preparation
• Should a tenant vacate a unit, Buyer is responsible for preparing the unit for the next tenant. This includes, but is not limited to, interior painting, cleaning (carpets included) and any other repairs needed to rent the unit.

5. Utility Expenses
• Buyer will be responsible for paying the water bill for the entire building and gas & electric for units “B” and “C.”

6. Leasing of units
• Buyer will be responsible for leasing any vacant units. Rental rates are to be agreed upon by both Buyer and Seller.

7. Eviction of delinquent tenants
• Buyer will be responsible for filing eviction paperwork for delinquent tenants and attending the court hearing (if applicable).

Responsibilities of the Seller

1. Pay real estate taxes, insurance and existing mortgage

2. Collect monthly rent from tenants

3. Send three-day eviction notices to delinquent tenants. If three-day notice is unsuccessful, the Buyer will take over with the eviction process (as noted in item #6 of Buyer responsibilities).

4. Hold and refund all security deposits of tenants, existing and future.

Addendum “B”

Payment to Seller

• The terms of this contract call for a purchase price of $86,900. Given the “seller financing” component of this transaction, the Seller will act as a bank and collect a monthly principal and interest payment from the Buyer. Like a bank loan, a portion of the monthly payment will be used to reduce the principal balance. The terms for this loan include:
• Loan amount = $86,900
• Interest Rate = 8%
• Term = Sixty (60) months
• Amortization = Thirty (30) years
• Monthly payment amount = $637.64
• Pre-payment fee = None

• In addition to the principal and interest payments, the Buyer will be required to pay the Seller a monthly amount for the real estate taxes and property insurance. The amounts are as follows:
• Real estate taxes = Annual cost of $2,309. Monthly payment amount of $192.44.
• Property insurance = Annual cost of $452. Monthly payment amount of $37.67.

• Buyer’s monthly payment to Seller = $867.75. ($637.64 principal & interest + $192.44 real estate taxes + $37.67 property insurance).

• Because the Buyer is not required to deposit any funds as a “security deposit,” only the Seller will collect the monthly rent from tenants. Once all rents are collected, Seller will deduct the Buyer’s monthly payment amount from the combined rents. The difference between the monthly rents collected and the Buyer’s monthly payment amount of $867.75, will be given to the Buyer.

• Should the Seller not collect a combined $867.75 from the four tenanted units, the Buyer will not receive any funds for that month. The deficiency between the collected rent and Buyer’s monthly payment will be repaid by Buyer in the form of withheld future monthly payments from Seller.

The rents are as follows:
Unit A = $400
Unit B = $350
Unit C = $600 (moving to $650 in October)

Total Rent Coming in = 1350.00

Cash flow = 482.25 per month.

Thoughts or ideas?

jay,

I offered to take over the property initially which would have given me total control, which would of allowed me to raise the rents, make repairs, screen new tenants, etc, but he wanted 10k down and would then finance the rest over a period of 5 years. He was not willing to do it without the funds and due to being a newb here I do not YET have them kind of funds laying around. But that is an awsome idea and something i wills till re-approach him about as one last final offer.

Kevin

Ok, think outside the box here. Do the math and make sure the deal works.
On 4 units I would want to net atleast 150-200 profit per unit after all bills are paid and have enough equity to be able to refi no cash out of pocket as well as cash out extra money to upgrade the building so you can raise the rents. I would then bank 50% of the profit each month for emergency repairs and to build a nest egg that I could reinvest in other property in the future. the other 50% would be in my pocket.
With that said and thinking outside the box, Is there any one you can borrow the 10k from (if the numbers work). to get the deal done? If so you could buy it owner financing,control the property and refi it with in a year using the equity in the property to pay for closing costs so there is no out of pocket expenses. You would have a better rate and the payments might be even lower than you will be paying the owner.
If you have bad credit,take on a partner with credit and enough money to put down the 10k. In my mind there are always ways around obsticals.

good luck, and if you cant work with the owner to make a win/win, then walk away on good terms and leave the door open for him to come back at a later time.
hope this helps.
Richie.

When I look at this at a business stand point I would run. If you set down and really look at it all you are doing is all the leg work. Keeping the property up. SPENDING MONEY OUT OF YOUR POCKET. And If which is a big word, Their is anything left you get it. A property management company would not even take a deal like this. But if their is one out their i will fix them right up on some of my deals. You really need to find out if his motivated are just trying to find someone to help him make sure he don't lose no money. In my opinion he diffident has a win win for himself.

Randy

Richie,

You are most certainly right there... and I dont see that coming from this deal, however let me tell you about abother deal I am doing today. Ill make a new post of it though.

Randy,
You are hillarious. I am glad that there are those of you out there that make me smile. I have read most of your posts and you continue to make me laugh almost all of the time... Kind of like the time when you offered to wear a dress... I almost lost it! Too funny man.
I have been meaning to PM you with something that I thought you might find of interest, its a VA Home here in Dayton and the guy is wanting out. Let me see if I can find the information and send it your way if you are interested.

Kevin

I agree this is not a real good deal as it stands. I would look at the
rent payment history ,get the deposits ,for your security .They should
go to you if you are responsible for renting the units.THis along with
the 3plex (use one to cover the other),keep the 8% int ,but get him to
lower the price on the 4plex by 5K. This may keep you out of trouble if
he really wants a win-win deal.The other stuff you would have to do any-
way. Do you have any money in this deal , if not what can you really lose.
Just some more food for thought. Oh put the deposit money in a interest
bearing account for repairs,banks love this , it may help you later.

Good ,Good , Nego'tions.
Randy ,Richie ,Jay all you guys are great.

Mel Tate