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I have a guy who owns a number of rentals in a town about 50 minutes from me. He is offering to give over management duties over a number of them. I would pay him the PITI monthly, keep the spread, and manage and maintain the properties. After a number of years and his loans are payed off, he will deed the properties to me on a schedule.
What other terms should I be looking for? Is this a good deal? I think it’s decent. I put in management work, a little money (to get a couple of them rent ready) and in 6 or 7 years own cash flowing properties free and clear.
I’d love an experienced person’s opinion on this.
Thanks,
KyleAre any of them rented now? If so, what are they rented for?
What is the piti mortgage payment on each house? Are the payments current?
It sounds good on the surface but you need a LOT more information
Are these fixed rate loans so the payment will not jump $200+ if there is a rate increase?
If the numbers work out, you should set this up on strictly a PERFORMANCE lease basis.
You only pay him when, and if, the rents come in.There needs to be sufficient cash flow in each property to make the 50 minute drive worth your time.
Sufficient to me is $200 per month minimum per propertyIn a fixed master lease you pay the owner no matter what–filled, vacant or anything in between. Unless you are an excellent manager, it may be better to do a performance master lease. You will not make as much since the owner is taking the risk, not you. In a performance lease, you only pay the owner if you get paid.
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Posted By Greg Christiansen on 10 Jun 2012 07:58 PM
In a fixed master lease you pay the owner no matter what–filled, vacant or anything in between. Unless you are an excellent manager, it may be better to do a performance master lease. You will not make as much since the owner is taking the risk, not you. In a performance lease, you only pay the owner if you get paid.
[/quote]Could you tell me how a performance lease would be structured as opposed to a master?
When rent is paid, you pay the owner a flat amount of that rent. Let’s say rent is $1000 per month. When you get paid, you send the owner $875 ( example numbers – could be more or less)
but if you don’t get paid, or if the house is vacant, the owner gets $0.00
takes the risk OFF of you which is a good thing. You want to avoid risks!!! Especially in this economy
The only way you would do a master lease — sending payment each month even if the house is vacant or you have not been paid– is if you get a really REALLY low lease from the owner. Using the example above – if you paid the owner $500 a month piti and you got to keep everything above that then I would do that deal.
But it all depends on the location of the properties, the type of rentals they are ( don’t do section
, and the market. Avoid low income housing – you’ll be chasing $$ all the timeThanks so much Jackie. I’m listening to your Real Estate Profit Secrets right now.
Here are the numbers:
Property 1 ? rent ready
Purchase price – $29,000
PW Plan — $345/month through 2019
Rent range – $575-625Property 2 ?rent ready
Purchase price – $44,000
PW Plan — $475/mon through 2021
Rent range – $575-650Property 3.?needs some repair – $1,200-1,500
Purchase price – $24,000
PW Plan — $270/mon through 2018
Rent range – $400-500Property 4. ? needs major repair – $3,000
Purchase price — $23,000
PW Plan — $260/mon through 2016
Rent range – $400-475These are all low income properties, so yes I imagine I’ll be chasing money. On or two of them may be section 8 too.
The reason for this is that the owner is older and burnt out and ready to not manage the properties anymore.
But, yeah, it does seem to be more a headache than anything else.
What did entice me was the prospect of owning these free and clear in a few years with just some management work and little, if any, of my own money. So I’m a little dissapointed that it doesn’t look like as good of a deal.
Lower end properties can be management intense, however they can pay off to get F & C properties quickly. You need to know the areas and be willing to work them until you swap them for better properties probably years down the line.
I have 5 lower end. I’ve worked hard to get good tenants (not Sect
and the current tenants appreciate having good properties (it’s a relative thing) and 4 of the 5 pay on time or early. The other one is chased every month, in fact he’s getting a 3 day notice in the morning – yes, it should have gone out last week, however he said he would pay by Friday afternoon. Who hasn’t heard that before…………. If it’s part of your big picture plan, lower end properties cash flow well & can work. However, understand that you’ll have lots of management challenges until you get good tenants, and I doubt master leasing is an option for you. I sure wouldn’t attempt it on lower end houses.
I would not touch these with a 10 foot pole. PASS
Even if they were in your own backyard, I would pass. But since they are an hour away I would definitely pass.
A friend in Jackson Mississippi owns 13 properties like this… all FREE AND CLEAR. He finally decided that the best way to make money is to just board them up and NOT rent them because no one can tear them up that way. 100% of nothing is still nothing. IN these low income houses, the tenants have no concept of taking care of a property. They will move in, tear up the house, then move on to the next one. Meanwhile the $1000 or $1500 a year you thought you would make in cash flow just went to a MINUS $4000 or $5000 in fix up costs.
pass on this.
Avoid low income houses unless you like constant stress and headaches.
Stick with Medium or just above that price range houses for the best tenants, ease of renting to someone who actually pays their own way, and tenants who will stay a long time and take care of the property.
, and the market. Avoid low income housing – you’ll be chasing $$ all the time
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