Motivated Landlord - Posted by Ronald

Posted by Buck on July 22, 2002 at 15:15:03:

I thot of it once, then forgot to put it in…

Oh well

Buck

Motivated Landlord - Posted by Ronald

Posted by Ronald on July 22, 2002 at 11:09:37:

Howdy folks!

Any help on this would be appreciated. I’ve got a landlord who is interested in selling his house to me.

The homes in the area go for about $65-$70k and he has another $59k to pay off his loan on this house.

Here’s his problem:

  1. He plans to retire next year and wants to be debt free
  2. He recently refinanced his house, BUTTTT… his monthly mortgage payments are $100 more than the rent he’s charging his tenants so he loses $100 bucks each month and they’ve got another 10 months on the lease.

What would be a good offer?

He wants to sell quickly not do a lease option especially since his tenants are still in the place.

Would he be a candidate for a “subject to” transaction?

Thanks in advance for all your help!

Ron
Golron@aol.com

Re: Motivated Landlord - Posted by JFinke KC

Posted by JFinke KC on July 22, 2002 at 16:00:01:

Ron,

If he is desperate, you may be able to talk him into paying off a portion of the existing loan. Example, you could buy it for $40,000 and he pays the lender the remaining $19,000. Of course, he would have to be very motivated! Offer a price that makes sense to you and leaves a positive cashflow and tell him he would need to pay the balance. The worst he can say is no. Well, he might chuckle a little too. But the point is, make an offer that suits your needs, don’t get tied into the seller’s problem.

Good Luck,

JFinke KC

Re: Motivated Landlord - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on July 22, 2002 at 15:49:36:

Ron–+++±---------------

You mention mortgage payment of $100 more than the rent. But, this is probably pre-tax calculation, right? After taxes it would be somewhat better. Say $55K improvement value and $4K value allocated to the land. Then there is a depreciation of $2,000 a year, or about $190 a month. If you are in the 30% federal tax bracket, with less than $100K taxable income, you would pay about $60 a month less in income taxes.

Now, you seem to indicate that the mortgage is slightly less than the market value, so you are picking up a little equity. Not much, but a little.

The cashflow will be, at least until the end of the lease, and perhaps beyond that, negative.

So, when you analyze the property’s CAT you see a negative cash flow, unknown appreciation, and some modest tax benefits.

So, the only question is appreciation, as was pointed out by an earlier poster. If you expect some significant appreciation over the next few years, this could make sense as a longer term rental. If not, it does not make sense as an investment, the way I look at things.

As a quick-turn property, it might make some sense. As Marcos suggests, if you can get the renter out, you might be able to resell quickly. In fact, if I were you, I’d talk to the renter and see if they could come up with a couple of thousand dollars and would take over the property with a mortgage payment that is higher than their current rent. If I were to do something like this, I’d even take something other than cash for the “downpayment.” A second car, services, what does the renter have to barter with.

You might get somebody else to take the property on for $2-5K, even with the negative cashflow, if they were property owners. So, get a deed from the property owner, then give a deed to your buyer, if you can find one.

You might want a slow-close contract or a purchase option, with the right to drop the deal if you can’t find a sucker… er, buyer for the property.

Good Investing**Ron Starr

Re: Motivated Landlord - Posted by brad

Posted by brad on July 22, 2002 at 15:20:04:

i have to look for the profit with a glass but why not see if the tenant wants to buy it from you. no they probably don’t have a dp right now but they probably get a tax return every year that could get deposited into your account. structure it so you don’t come off of any money and you get x amount of dollers yearly above the rent as coniceration. you let them know that if they are not interested then they will need to find somewhere to live. chances are they will be out soon if they know that you are not going to renew the lease. put this up front with the seller about getting them out.

Re: Motivated Landlord - Posted by Al - So Cal

Posted by Al - So Cal on July 22, 2002 at 13:16:23:

Your job is to find a deal not to just do a transaction
because you can.
I recommend the following:
Look at the numbers and forget the STORY why some-
one is selling. Use reason and logic.
It might be a shoe-in situation but if the deal doesn`t
make sense profit wise then pass. Good Luck.

Re: Motivated Landlord - Posted by Buck

Posted by Buck on July 22, 2002 at 12:01:02:

Yeacht!

Assuming you have sufficient profit were you to buy a vacant building, we have some creative thinking to do.

First, ask the owner if there is a sale clause in the lease, that is the tenants agree to either leave or sign a contract with the new owner under new terms.

If that doesn’t work, negotiate terms with the owner contengent upon you being able to remove the tenants. Make it as profitable as you can, remember, the owner wants out of the negative cash flow.

First, payments are paid after the month of owner ship so you might ask the sellers to continue payments to you for at least one month, maybe more.

Then be looking for a tenant/buyer with a good sized Option Payment. That will give you money to work with.

In the meantime, ask the tenants if they are willing to leave so you can take possession of the property. They might agree. If not, offer to bribe them. Will they take $500 to break the lease? Pay them when they turn over the keys. It may take more, it may take less. Ask them what they want to break the lease. It may be less than you think.

Once you have them in agreement to leave, you are on track.

Good luck

Buck

I agree with Marcos… - Posted by Tim (CT)

Posted by Tim (CT) on July 22, 2002 at 11:52:51:

If you’re going to incur a negative cash flow then there’s got to be something else to make you want this property. Are the properties appreciating at a good clip? If not, then I don’t see a deal here either. I’d walk as well.

Re: Motivated Landlord - Posted by Marcos

Posted by Marcos on July 22, 2002 at 11:46:46:

I hate to say this Ron, but why would you be interested in making his problem your problem. Do you realize many real estate investors look at dozens of “motivated” sellers to get the one jewel they are looking for.

IMHO I would walk on this one. What he basically said is he already took all of the equity out of his house, and now wants you to take over his looming problem.

Sure, you could probably put the deal together, but why? At least point out where the profit lies in this transaction, because I’m not seeing any at this point.

HTH,

Marcos

Re: Motivated Landlord - Posted by brad

Posted by brad on July 22, 2002 at 15:12:15:

why are you looking past the current tenant as a buyer. do not bribe them to leave before you try to sell it to them. unless they have a shaky payment history they are a good canidate. and besides they already live here so they know if they want to continue to live here. let them know that if they do not take your offer then you will not renew the lease. lower income family? looks like a chance for you to get there tax return for a few years. put it in the option concideration.