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Ok, I’m looking to buy my first rental and I need some ideas about terms and things that will make this a good deal.
The property is on a great street across from a very popular local lake.
It will make a great rental and only needs a few appliances and a little cleaning to be rent ready.
They are asking $70k, but other houses on this street have sold in the past year for between $43k and $62k.
They are willing to do seller financing with 10% down and a 3-5 year term with a ballon.
Terms are negotiable though, so I’m looking for some creative ideas.
I believe they are somewhat motivated, but I’m not sure how much room there is for price.
Any ideas? This would be my first purchase, so I want to make it a good one!
None of the terms you listed will lead to a good rental. You might be better off looking at this as a flip to an end buyer. You can wrap your financing if you get good terms. I would come back with a reduced price, reduced down. I would walk if you can not get it fully amortized. Figure what it will rent for each month.
Then deduct 1/12th taxes and insurance. Figure what you want for your monthly spread deduct that amount. This would then be your payment to the buyer.
Divide that into the principal balance and that will give you the term of the note at zero interest.This is a quick and dirty approach. You have to look at your figures and make sure they make sense.
Don Wede
Hi Kyle,
I’m going to try to play devil’s advocate. You’re excited about this property so let me ask some gut check questions. I think these are questions worth answering no matter what you decide to do with the property.
1. Why do you feel this is a great rental prospect?
2. What are market rents in the area? Based on this number, you can back into your bottom line. I use 25% for vacancy and maintenance.
3. What other maintenance has the seller done to the property? I worry most about mechanicals and foundations. Has it been a rental in the past? If so, what is the rental history?
4. One thing that almost everyone overlooks when they calculate their cash flow is “reserves”. How much will you need to put aside from each rental payment received for capital expenditure reserves (roof replacement, water tank, HVAC, exterior house painting or siding, etc)? If those types of capital expenditures don’t come from cash flow, how will you pay for them? they will eventually wear out and need to be replaced.
5. Why are they selling this house? How did they come up with their selling price? What are their objectives? Are they buying a new house? Moving to another investment?
6. Most important, how does this investment fit in with your objectives?I hope some of this helps you evaluate this opportunity.
Somewhere I had a spreadsheet that compared a rental vs. flip investment. I’ll see if I can put my hands on it.
I’m pretty sure there is something in the Wholesaling material that addresses how to know if you’ve got a good prospect.
Deb in Columbus
If you assumed that everything is negotiable, what would be a good offer on this one to hold as a rental?
I guess nobody really advocates bank loans? A longer term note would cash flow pretty well.
I feel like I can negotiate the price or get some really good terms. I’m looking for something creative that will end up with me owning the property. If it’s not a good deal, then ok, but people in this business do creative things all the time.
If they are asking $70k and the house is not worth more than $45k – $62k it is an indication that they are not motivated sellers… which means they will not be negotiable.
the price you pay does not matter as much as the TERMS you get.
What will it rent for?
If it will rent for $600 a month
you need to make PITI payments of not more than $300 a month, $350 MAX.
WITH NO BALLOON.Sellers do creative things all the time ONLY if they are extremely motivated.
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