Potential First L/O deal - Advice needed. - Posted by Tracy

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)

Potential First L/O deal - Advice needed. - Posted by Tracy

Posted by Tracy on March 29, 1999 at 17:32:38:


I have been studying Bill Bronchick’s L/O workshop since I purchased it at the convention and now have found potentially my first L/O deal.
A builder has had a new home sitting for 2 years.
Here are the details:
3 Bed 2 Bath.
In a gated community, approx $50/mo fee.
1800 square feet all on one level only.
Custom builder, all the nice stuff.
Mortgage balance of 188K, listed for 197K with Realtor, willing to give up for balance (plus commission if bought through realtor).
Mortgage payment of 1500/mo. Willing to lease to me for 1200/mo just so they don’t have to eat the whole thing any more, and they don’t think they can get 1500/mo.

The house has been sitting because when they built it the city mis-interpreted the engineering plans and told them they could not build any basements because of a high water table. This builder built two homes, then the city re-interpreted the engineering plans, correctly this time, and all the rest of the homes were built with basements. The builder’s son bought one home, and the other is still sitting. The homes in this community are very nice, and not cheap. The home has not sold because for similar money(slightly more) the buyer can get a basement in another home.

I sat down with the builder last week and explained how I could help him. He called me back today and said they want to get together to work out the details for this home.

Why I am writing this is because I will get the house for $1200/mo., but most houses, especially 3 beds & 2 baths, don’t rent for that much. Granted this house is not the average house, which means my market is much smaller for this house. The rent I would charge would be anywhere from $100 to $300 more, and the price around 200K. With the type of people who could afford this kind of house I could get a good amount for option consideration. But I am worried that I am going a little over my head with this house.

Would anyone on this site do a deal like this? If so, how would you approach it.
I did not mention to the buyer that I would need 1-2 months to find a tenant, but since the house has been sitting for 2 years, and is still listed with the realtor, I don’t think they will care.

I have thought that I could somehow target empty nesters or retired people. Any ideas?

Thanks a lot,

Re: Potential First L/O deal - Advice needed. - Posted by Bassman

Posted by Bassman on March 29, 1999 at 19:46:42:

Tracy ,
Why not do just an option on it , markat it and see if you get any one interested first . If no one is willing , then you havent lost much . If you do find someone interested , then request a L/O from the builder . Make him take the loss on price since you are helping him out. Get a 2 year min. L/O with the price to be the balance of the loan at the end of 2 years . Sell the house for 190K at end of L/O , $1600/month 12K down.
Just my thoughts .

Re: Potential First L/O deal - Advice needed. - Posted by Bud Branstetter

Posted by Bud Branstetter on March 29, 1999 at 18:43:15:

If you have no comitment until you get someone in the house you have little risk. If you have a clause that you have no personal liability but only return of the house you again minimize your risk. Your risk seems to be that the house is still overpriced at the mortgage balance.