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I’ve been talking with an investor for several months about acquiring some or all of his rental portfolio.
The investor wants out but he is under water on every property. He uses a property manager so he’s not really involved but he still gets some tenant calls and is losing sleep having these properties.
On 4 homes his mortgages exceed the values by 4-5 times. Two properties are locally financed at just about their market value. The other 4 properties have paid off mortgages using his HELOC.
Trying to use some creative ideas we came down to this:
The 4 institutional mortgages would need to be short sales (unless someone sees another solution. The lenders have extended the term of the loans with 5% fixed rates but will not reduce the principal balances). The locally financed properties are throwing off some cash flow. Three of the other four properties are cash flowing, but one house is stripped and needs rehab and one unit needs to be finished and rented.
The stripped house is a train wreck in a terrible neighborhood. It easily needs $15-20K in rehab. The other unit is a garage apartment needing maybe $2.5K to finish.
This investor is trying to get as much back from these homes as he can, but realizes it will take a very long time. In the meantime he’s using the cash flow to pay down his HELOC.
He wants me to partner with him on the train wreck house and the garage apartment. I’m not personally interested in either property for my portfolio, so I’m thinking about taking an option on the train wreck, which he’s willing to let go very cheap, and wholesaling it for a few bucks. I’ve never wholesaled a property and I need the experience.
For the garage apartment I would let him pay to finish the space, I would provide the expertise and contractors, and split the cash flow with him.
Am I completely crazy to even continue conversations with this investor? I’d like to get the cash flow from the other properties but I don’t think it makes sense for the investor to give them up. I’d like to solve at least one or two problems for him before I take on his entire portfolio.
I welcome your thoughts.
:unsure:No reason to make his problems your problems. Not a time to take on risky deals.
Just get a master lease and enjoy the cash flow
don’t take on the responsibility of ownership for theseInstead of using a property management company, he can lease to you
with the right to sublease to tenants.You can promise that he won’t get any more tenant calls.
Use the Tilney Hassle-free system for managing tenants and the owner
to reduce your headaches too.you can always get an option later but it would be a good idea to try out
these houses before you commit to a long term relationship.
I’d pass on the fixer and the war zone property.Thanks. I have a feeling he won’t be able to resist the cash flow he now enjoys by master leasing the properties to me. And that’s okay with me. I think there are better ways to make a buck in this business. I can always wait it out until he has a couple vacancies and he has to come up with still more money to pay the mortgages.
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