Posted by JohnBoy on March 08, 2002 at 15:34:38:
“”“1. Lease to own 2bd next to the local college. Can I advertise and see if any renters are interested even before making the offer?”“”
Sure you can, only by the time you find someone the deal could be lost to another investor. Instead, just tie it up under contract subject to you being able to find a suitable tenant to place into the property within the next 60 or 90 days. Then if you find someone close the deal. If not, either extend for more time or just walk away at the end of the 60 or 90 days.
“”“2. 3 bd townhouse who is foreclosing because she is $4500 in past fees HOA that she can not come up with. If we pay the debt, she will deed us the house and we take over her payments. Her mortgage has $77,000 left.Can this work? We’ve talked with the HOA and they will not discount the past due balance. The loan is only 1 1/2 years old and not much equity (few doors down the same model is for sale for $81000 which is exactly 500 less then her mortgage plus 4500 hoa- does this make sense).”“”
Yes, as long as the numbers work then this would work. What are the P&I payments, taxes, insurance and HOA dues per month? What can you get for rent? Are there any restrictions with being able to rent these out?
“”“3. A 7-plex for $410,000. She will carry the loan all expect 15%. It has renters that generate $4500 monthly and they have all been there for years (expect one new year contract). Problem is we only have about $5000. She won’t lease to own. Are there any other options other than a partner? Would you borrow the down payment. Could you buy one unit with financing and somehow make that as the down payment? She owns these units free and clear.”“”
This doesn’t look like a deal. She’s asking to much!
If she financed 85% at 8% over 30 years your P&I payments alone would be $2,557.17 per month.
Then right off the top take 5% for vacancy allowance, 5% for deferred maintenance and 6% for management (whether you manage yourself or not. You still to need to pay yourself if you manage it)
That’s 16% right off the top in expenses which would be $720 per month. That brings the gross income of $4500 down to $3,780.00
Then deduct for other expenses like:
Accounting
Advertising
Insurance
Lawn/Snow
Legal
Misc.
Repairs & Maintenance
Supplies
Taxes (property)
Utilities
After deducting the $2,557.17 P&I payments from the $3,780.00 you’ll have $1,222.83 per month left to cover all the other expenses and allow for any positive cash flow. I would want at least $100 per unit in cash flow which in this case would only leave $522.83 per month to cover all the other expenses which ain’t gonna happen! You would end up with a negative cash flow! Total expenses when accounting for vacancies, management and deferred maintenance could easily run 40% of gross income, excluding debt service (your loan payments). The gross income would be $54,000 annually which after deducting 40% for all expenses would leave $32,400 net operating income. That’s $2,700 per month and your interest and principal payments would be $2,557 leaving you with only $143 per month left. Then out of that you still need to deal with making payments on the other 15% you don’t have to put down.
I would be looking at about $324,000 as a purchase price, not $410k.
You say she owns these free and clear and ask about buying one unit. Are these all titled separately or is this one building titled as one unit with 7 units inside? The above was based on this being titled as one entire unit. If these are separately titled like condos then you would need to break each unit down separately to determine a value to be placed on them.
“”“4. Finally, (thanks for bearing with me) there is a older home on 2 acres near us that has a guest house in the back that is 4 bd. They want $270,000. They have a 2nd for $60,000. We have renters lined up to pay $1200/mo for guest house if we could swing it. We were looking to buy it as our residence and have renters until we can afford to fix up the main house. We can only qualify for about $200,000. We even tried with our renter as a partner but his credit didn’t help. We decided we were just over our heads, but I thought I would run it by you to see if there are any other creative ideas. There is an area that we could turn into a studio space (I have dance teachers in another space we rent).”“”
You say there is a $60k second, but what is the first? How much is there in equity?
“”“Any help again would be appreciated. We are thinking maybe we should just save up more than our small $5000 before moving on anything, but maybe we are just scared.”“”
If you wait to just save your money you will be waiting for a long time! You need to start building that cash by getting out and doing some deals! I would avoid just buying to hold as rentals right now until you can build up your cash. Meanwhile work on doing L/O’s, flips, and subject to deals where you can make so money up front off your buyers or by flipping your deals. Then once you get your reserves built up then look into renting properties if being a landlord is something you want to get into.