Posted by Warner(ATL) on April 28, 2000 at 11:21:31:
Stephanie,
This deal is a little tight from a total investment to value standpoint. You’ll be in at 35K total and the value is 42K. This is 83% of value, which isn’t bad, but leaves little room for mistakes and other expenses that tend to “show up out of nowhere”. However, the financing does help with the owner carrying back the second mortgage. The rule of thumb you’ll see around here is (FMV of property *.70)-repairs=maximum amount you should pay for a property. How are you going to pay the owner when the three years are up? I would only structure the deal this way if I was going to L/O it with a strong tenant (which you may have already considered) or sell it retail outright. Otherwise I would work on the price a little bit more.
I have been negotiating with a FSBO who lives out of state. House comps at 42,000, he’ll sell for 30,000 zero down in exchange for repairs 3-5K. 2 bdrms, 1 bth, florida room and enclosed patio addition. Kitchen needs some work appliances are old and kitchen is outdated. Properties rent for 500-550 most people are either elderly or renters nice block. Is $30,000 too much with $20,000 hardmoney and him holding a 2nd for $10,000 for about 3 years. I plan to buy and hold since this area rents really well. I’m still green and not good at negotiating win/win situations.
Don’t forget to account for marketing, holding, and selling costs. Those costs plus the fees for hard money would make that deal a no-go for me. Sounds like it might be worth putting a written offer in his hands though (at a price that works).