Posted by Chris on November 20, 2006 at 06:34:18:
Thanks everyone. I’ve decided that this is one to let go. I’ll keep my eye on the property and wait for it go into foreclosure.
Seller MOTIVATED… can we make a DEAL?? - Posted by Chris
Posted by Chris on November 18, 2006 at 09:03:41:
I am in the process of talking to the owner of a 4 duplex property. This is the owner’s first jump into real estate and he is way over his head. He is currently owner financing it to another investor, but the investor let it go and it is now completely vacant except for two units who do not even pay their rent. All of the units need some paint and carpet and the exteriors need a makeover.
I approximate the repairs for the property at $35,000 tops.
8 units rent at $450/mo. gross rent = $3600
owner pays water of all units ~ ($250)
taxes at $4500/12 = ($375)
insurance at $3200/12 = ($267)
maintenance ~ ($400)
vacancy ~ ($450)
net operating income = $1858
The payoff for the owner is $195,000 and I can get the property appraised at $250,000 after it is filled and repairs are completed. I realize that their is no deal in that sense, BUT the owner is very very very motivated. His payment on the note is $1500/mo and he is willing to take a negative cash flow lease-option scenario. What do I offer???
Re: Seller MOTIVATED… can we make a DEAL?? - Posted by Chris in FL
Posted by Chris in FL on November 19, 2006 at 21:04:29:
If the seller is willing to have negative cashflow to sell, have him put his money where his mouth is. Tell him to sell it to you for a price that makes sense for you to buy it (less than he owes). He can finance something else of value (his residence?) to come up with the shortage, and will essentially be left supplementing your cashflow by taking on a new monthly payment (which is what he already agreed to do). Make that happen and you will have a deal that makes sense for you, with no hocus pocus necessary for you to win. If he says no he isn’t committed, and you shouldn’t be either. Best wishes!
P.S. - What is that they say about having bacon and eggs for breakfast… The chicken is involved. The hog is committed!
Re: Seller MOTIVATED… can we make a DEAL?? - Posted by Calix
Posted by Calix on November 18, 2006 at 18:14:58:
Chris,
I have to agree with Todd(AZ). This deal seems not only tight, it?s a little backwards.
When I analyzed it, I broke it down into components by property and have to assume that the financials (repairs, values, etc.) are the same for each property since that?s how you presented it. Obviously there will be variations, but for this analysis, good enough.
So, if we?re looking at just one of the duplexes?
$62500 After Repaired Value
$48750 Current Mortgage(s)
$8750 Estimated repairs
$900 Gross monthly rental income
$465 Net monthly rental income (approx.)
Repairs are 14% of the After Repaired Value, that?s ok.
Debt is currently 78% of After Repaired Value, that?s a little weak because you have repairs to do with no income being generated. Also worries me of what the % is compared to the value in current condition.
Personally, I use the old 70% minus repairs rule when looking at a deal that I?ll have to put money into, but that also presumes I?m paying all cash. That scenario would not allow me to pay more than $35,000 for the property and it already is in debt for ~$49K. To see the aggregate results for the project, multiply these figures by four since there are four properties.
Now, you said the owner had ?owner financed? it to the previous buyers but is now willing to just lease/option it. I can understand that since they got burned by transferring a deed before, but that?s the risk that banks take everyday too. If they want to lease/option it, they?d have to take a dive on the price before I?d ever participate and if they are having financial troubles now, I don?t see them paying off a segment of the loan anytime soon.
I once heard a saying in a real estate investment class about deals like this?
?Unfortunately, you can?t make chicken salad out of chicken s**t.?
Owner motivated, yes. Just don?t take his place. This deal might be headed for foreclosure sooner or later unless the seller finds a ?greater fool? in the marketplace.
This is all of course, just my opinion from the way I look at deals. Perhaps someone else out there has a cool way of making this all work out. I hope they respond to you too.
Have a good day!
Re: Seller MOTIVATED… can we make a DEAL?? - Posted by Todd (AZ)
Posted by Todd (AZ) on November 18, 2006 at 16:37:30:
Chris,
Sounds like a very tight deal with a few concerns. If he is owner
financing it to you, why is he willing to take a negative cashflow? And I
would be concerned too about if he got into a situation where he had
trouble carrying the negative. Secondly, what are you anticipating your
payments being? Or is that your question? This seems like a very tight
deal, not much cashflow left over if you end up with a bigger repair
than your maintenance allowance, it can blow an entire years cashflow
in a hurry.
You wouldn’t have much room in way of flipping either, not to mention
that flipping 4 duplexes is not typically something that can be done
quickly, but nonetheless, after $35K into it, you are not left with much
at all.
He simply owes too much and has too high of a payment for the
figures you presented. I wouldn’t rely on him taking lower payments,
that’s a dangerous game to play. If rents were higher, or the payoff
was lower, it may make sense, but as it stands, the little cashflow does
not justify the investment.
Todd
Short it - Posted by Marc Donovan
Posted by Marc Donovan on November 20, 2006 at 06:35:10:
This is a short sale candidate if there ever was one.
Keep your toolbox full. Lay em all out on the bench and choose the right tool for the job at hand.
Re: Seller MOTIVATED… can we make a DEAL?? - Posted by Chris
Posted by Chris on November 19, 2006 at 07:49:34:
Thanks for the comment.
You are correct, there is almost no equity and the cash-flow does not justify the large debt service. The only thing that really kept me interested in this situation was the fact that the owner told me he would take a negative cash-flow on a lease/option.
Having a $1800/mo+ net income, if he was willing to take $400-600/mo for a long-term option (5 years), would you go through with the deal???
The owner is desperate and may have to go through a foreclosure if I cannot work it out with him.
Re: Seller MOTIVATED… can we make a DEAL?? - Posted by Blane (MI)
Posted by Blane (MI) on November 19, 2006 at 12:59:08:
Chris,
My answer is NO, I wouldn’t do the deal as presented. “There is almost no equity and the cash-flow does not justify the large debt service” is reason enough; the fact that the seller would consider a negative cash flow situation is irrelevant. If there aren’t other possibilities as Joe suggests, there’s probably nothing that can be done. Sometimes, no matter how desperate a seller is, there’s nothing that can be done without making their problem YOUR problem. If it was me, I’d pass. Just my .02.
Blane
Re: Seller MOTIVATED… can we make a DEAL?? - Posted by Joe Kaiser
Posted by Joe Kaiser on November 19, 2006 at 08:03:15:
Chris, all good provided you’re able to secure your deal with other seller
owned collateral. What’s he got? Anything with enough equity to make
you and your deal secure?