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I’ve been posting here and there about a Columbian lady I met that owns 20 homes. Most of her homes have a mortgage of which I am not interested in taking over. She does not want to master lease as she likes to manage and collect rents herself at age 81. After several coffee sessions and helping her with a rental and a burnt home she owned, I asked her if she would be willing to carry paper on the five & free clear homes she owns. She said NO WAY! She’s had three bad experiences on owner carry deals. Then I asked her plainly….”Maria what if I was the one that wanted you to carry paper for me”? She says “Yes of course”. So now what?
Her five and clear homes are nice properties with long term tenants. I asked how much she wants as a down and say mentioned 100K for all five. All together they’re worth about 500K. I think she may take 60K-70K on sweet heart terms. How would I go about getting the hard money to use as a down?I went for a revisit and coffee session today.After some time, her homes came up for conversation.
Here’s the break down….Five homes free and clear,
owner 82 years old/ daughter 55 years old
Income cashflow:$3025 per month
Expenses (taxes/insur): $890 per month
Current market value: $350K
Repairs: none, all homes have long term tenants and need nothing at this pointSo she asked what I thought about the homes and what I planned to do if I bought them. I honestly told her I would like to keep them long term as income and for my kids in the future. I then told her what the market values were and she grimaced, stating that she would rather die versus selling them for current market price ($350K). So then I remembered reading that Jack Miller says its ok to pay more as long as the terms work out. So I presented to her that I can buy them for her asking price of 600K only if she carries paper. She asked how much I wanted to put down and I told her I had my money tied up. So said ” no problem can you make balloon payments on the down”.
She’s willing to carry the whole package deal with nothing down. She’ll get $2,070 a month for 30 years with 1.75%.
She mentioned that the interest is low and she normally would ask for 7% and that in 30 years she or her daughter won’t be alive. She has no other heirs nor wants to give to any charities. She mentions a 15 year note. So I figure I would present to her again the fact that she’ll collect 2k a month and every five years I can give her a 25K balloon payment for the 100k she wanted down. She liked that idea but then asked about the closing cost and 3.5% state taxes she’ll pay on the sale of each home. I told her I’ll go to title and get an exact amount to close and inquire on how to divert those taxes. I think if I cover the closing and work some way for her not to pay the taxes…she’ll move on the deal. She is not interested in a lease option as she stated that if she sells, she wants title to transfer, get away from paying taxes and insurance and carry the paper.
We so are close to making this deal… I just need some help on the lose ends. We’ll meet again soon.What if she mentions that 7% interest rate again?
What if she mentions the ” we won’t be around in 30 years again”?
Is there any way to get away from her paying those taxes to the state?
First of all, you’re paying twice what they are worth.
Sure, you can pay a little more, like 10-20% more, but not 100% more
even if you are getting 1.75%she wants WAY tooooo much for a down payment. This was your mistake because you asked her how much she wanted instead of TELLING her what you would do. You should never ever ask a seller how much they want for a down payment.
basically, she wants 30% down on what they are really worth as a retail sale
for that kind of down payment, you should get a substantial DISCOUNT, not pay twice as much
what if you can’t come up with the $25k.
you have to think of all the things that can go wrong
read the new blog, do’s and don’ts of financing.
Instead of $25,000 being paid towards a down payment every 5 years or 4 years, what ever you said,
you could structure $300 – $500 a month extra to go towards the down payment. That would work
but NOT with a price tag that is twice marketrents are really really low
expenses are really really high
there is a problem with this. You need to investigate.have you seen the inside of the houses?
have you verified rents?
are any of these section 8 ( if so PASS)I would PASS on this deal. The terms are terrible. The price is terrible. The rents vs expenses are way out of whack. She is not motivated to sell.
THE TEST
Arcinio
another TEST for if an opportunity is a potential deal or NOT, is to ask,
could I sell this deal to someone elseIf the answer is no, then it would not be a good deal for you either
who would pay $600,000 for properties worth $350,000?
no oneWho would agree to pay $100,000 down, installments of $25,000 every 4 years for properties that are prices almost double what they are worth?
No one.Another way to think of it is how can I structure this deal so it CAN be sold to someone else? either for an assignment fee or to wrap it then sell it.
No one in their right mind would buy your contract to buy the $350,000 houses for $600,000, even if it is 1.75% You could not sell that.
If the seller wanted $20,000 down you could sell it to someone else for $30,000 down than make $10,000 on the spread
If the seller wanted $300,000 for the properties, you could sell them for $350,000 and make a spread on the down payment, the monthly cash flow, and make money on the back end.
But with the numbers you have, none of these things would be possible.
In every deal you do, think how can I structure this so I can sell it quickly.
Even if you decided to buy (if the numbers were right) something could happen in your life so you really need to sell ASAP. The purchase price, down payment, and interest rate need to be good enough that you could sell the properties to someone else either for cash or wrap it and sell it to get your money back.
If you could not sell this deal to someone else next month or next year, then YOU have no business doing the deal either.
This Columbian lady is obviously NOT motivated. Perhaps she should be at 82. But she’s not. That is the bottom line. Keep in touch with the family. Perhaps someday they will be motivated and you can buy a a good price and/or terms.
So what about this:
We spoke again I told her I can not buy all 5 of her homes on those terms. She then asked me if I wanted two. She’ll sell two for 150K, 0 down 6% on a 30 year note. After all expenses, I’m left with about $500 in cash per month. The homes need no repairs whatsoever. They were just fully remolded. The kicker is I pay closing at $300 per house ($600).
what are they really really worth today.
if you bought these houses in July, what could you sell them for in August?
what are they rented for
what is the insurance
what are the taxes?
how long has the tenant been there?
is the tenant section 8? … if so pass on the deal
What’s the neighborhood like? schools?
What type of construction?
When was the roof replaced?
When was the HVAC system replaced?
How old is the house?closing costs will be a lot more than $300 per house! The doc prep alone will be $500, plus recording fees, plus other fees. If you get a title policy, and you should, it will be about 1.5% of the purchase price.
Who pays the 3% sales tax to california?
One thing Jack always recommended when dealing with elderly sellers, and there are probably state laws in california since they like more laws than other states, is to get the her daughter to sign off on the transaction too. Get an attorney to draw up a document that says the daughter agrees with the sell of the property and she realizes that it will no longer be in her mom’s estate. You could add that the payments will be made to the daughter when mom passes. Also have mom sign something that she is of sound mind and body and selling the houses willingly. seriously, you need an attorney to write this up so it complies with state laws
is you don;t
the mom or the heirs can come back later and say you took advantage of old mom. Especially since you went over to her house or met for coffee so many times.If I remember right, some cashflowdepot members in california bought a house from an elderly person for $150,000. A year later, the elderly person said they swindled them out of the house. Guess who lost their $150,000… and the house?!
There are too many “unseen” things such HVAC, pluming, tenant leases. Also, per the current market in my area, I don’t think I can sell these right away. The 3% is a withholding only if the homes were being sold for more 100k each.
Honestly…I just don’t feel to mess with holding properties if I end up moving real soon.I’m gonna pass on buying to hold. I need to focus only on quick cash deals. I just don’t want miss any good opportunities. Should I be afraid of missing deals if I focus on wholesaling?in your situation, since you are planning to move soon, you should only focus on wholesale deals or options & highest bidder sales
in the future, it is much better to get advice from the group here at cashflowdepot before you make an offer.
you will get burnt out quickly if you make offers that get accepted but they are bad deals that you cannot or should not do.
we want to help you avoid risks!!!!!
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