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Hi all,
Here’s what I’ve got worked out. This is a total seller financed deal. No banks. Single family home. It has two living units, one 3 bed/ 2 bath, and one 2 bed/ 1 bath. Both are included in the deal. Seller is moving on, and ready to unload the property. He obviously owns it outright. He has tenants in both units until May, at which point I would need to get tenants solely for the 3/2 side. The 2/1 side tenant has lived there for 12 years, and would like to stay. I talked to him, and he seems very nice, and the current owner says he’s never been late with rent. Here’s the breakdown:$5000.00 downpayment
$2100 collected in rent every month
– $90 for insurance per month
– $220 for property taxes per month
– $1,271 to seller as principal and interest (30 year fixed simple interest)I’m assuming 1 month per year vacancy (just trying to play it safe) of $167.00. This home is just off a college campus, so tenants will most likely be there 1-2 years, then it will turn over. It is in a VERY high demand area. Of course there will be some maintenance, which I figure will cost $100.00 per month. I’m not sure if this figure is an over-estimation, or an under-estimation. I’ve been in the house business as a carpenter/remodeler for many years, so i figure I can keep maintenance pretty low with good tenant selection.
So, what do we think? A good first deal, or something that I need to re-work. Looking for some of that CFD senior advice! Thanks everyone.
Trevor
Fair market rents are $750.00 for the 2/1, and 1500 for the 4/2. Comps put it about 300,000. Purchase price $276,000 at 4% fixed interest over 30 years(PI payment is actually $1293, not $1271 as listed above). Just off a college campus, so i figure the larger unit will turn over more frequently than the smaller one where the tenant is older and content. Owner is retired and living out of state 6 months a year. doesn’t want to deal with it. I spoke with him about that monthly payment, and how it would be a great thing to rely on and pass on to his heirs. He liked the idea, thus no balloon.
any deferred maintenance?
The sales price is retail – maybe more based on the rental income
A better game plan would be to master lease the property. Still pay him $1293 per month. Do a 3 year lease with the right to renew for another 3, then another 3, etc for up to 30 years.
To make the seller/landlord feel more comfortable, you could pre-pay 3 or 4 payments in advance so he knows you are serious.
Get an option for the $276,000 price and secure it with a deed or trust or mortgage.
Have a percentage of each lease payment apply to the purchase price Ideally 20 to 50%. Structure it so the house is completely paid off in 30 years. And it builds equity in your option just in case you decide to sell the property instead of exercising your option later.
This puts you in a much SAFER position.
He still gets the monthly cash flow and does not have to deal with management.
if there are any repairs needed, offer to pay the first $100 in one month, the owner pays the rest.
The seller pays taxes and insurance.
The last thing you want to do is buy their units then have a heating system blow out in the middle of winter. It could kill your cash flow for 2 years.
After the first 2 or 3 years, once you have had an opportunity to test drive the proeprty, you can always go back to the owner to negotiate (re-negotiate) buying with seller financing.
But play it safe on your first deal and just master lease.
REMEMBER, YOU DO NOT NEED TO “BUY” THE HOUSE TO MAKE A BIG PROFIT AND CREATE CASH FLOW.
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