Posted by Bill K. (AZ) on March 29, 1999 at 18:37:04:
First of all, good for you in taking the initiative to contact the builder! If you solve THIS problem for him, you may get a lot of additional business.
In your situation, I would want to make sure that I could, at least, cover the lease payment with the builder. You’d certainly like to have a couple hundred extra per month. If you find that you can rent the property for $1,200/month, try asking the builder to take $1,000 or $1,100 to get that cushion.
Also, I intend to try for a minimum of $3K in option consideration for each $100K in value. So, if you can get $6K option consideration, you’ll have a cushion to cover any unexpected expenses. Of course, with a new home, expenses would be low, and should be covered by the builder for the first year or two. Again, $6K is good, but a few months vacancy reduces that cushion considerably. If the back end were more substantial, it might be OK.
Finally, you want to assure yourself that you can, indeed, get $200K for the home. That’s the LEAST I would accept in this deal provided you get the home for $188K, can rent it for more than your lease payment, and get a large option consideration.
I would consider your situation a marginal property, but I certainly wouldn’t rule it out without investigating the market further. Perhaps, because I’m a “newbie”, I’m looking for as much cushion as I can get.
I don’t know about targeting “empty nesters” or “retirees” alone. That would depend on your market. Generally, I’m marketing to anyone who qualifies.
Good luck with your investing. I hope this helps.
Bill K. (AZ)