Posted by NEWINVESTOR on March 24, 2002 at 13:29:31:
the property is selling for $25,000 it’s an old house and it has two suits the one upstairs rents for $650 a month ($7,800/ year) the one downstairs $385 a month ($4,620/ year) total income $12,420 a year. They are both rented, his yearly expenses are of $7,432.87 this includes advertising,electricity gas,maintenance,taxes and water. the yearly income after expenses is of $4,987.13. What should I do now? Any help would be greatly appreciated. Thank you
Posted by NEWINVESTOR on March 23, 2002 at 22:18:28:
I was hoping someone can help me with this:
I have this seller that would like me to buy his house. He is asking $25,000 for it, the yearly income after expenses is of $4,987.13. The property generates $12,420 per year in income and the cost to carry is of $7,432.87. He said that he would consider holding on to the financing if I give him $5,000 down. What in your oppinion, do you think I sould offer him in order to get a good return on my money. I was thinking I would offer him $2,000 down and make him equal payments of $250 a month for one year ($250 x 12 = $3000 )
This would give him his $5,000 and it would allow me to get in without alot of money. Any suggestions and comments are greatly appreciated. Thank you. ( what terms should I offer him for holding the mortgage? )
Being something of a sceptic, I’m wondering why anyone would sell this property unless they are desperate for cash. You could pay $25 K cash and make about 20% CCR if those numbers are accurate.
Before leaping into it, I’d check to make sure that having two units in this house is allowed by zoning. Someone may be trying to pawn a zoning problem off to an unsuspecting new investor. It might also be a good idea to check in with the Recorder’s office for any liens that you have not been told about.
If those things check out favorably, I’d tie this one up and maybe look to flip it to generate some cash for your next deal.
If I were the one making the offer, I would make it subject to verification of the numbers. Expenses are almost exactly 40% of income, coincidentally, the number investors use most frequently. Priced at 5 x net, a cap rate of 20% is pretty good for a 2-flat.
I accept everything sellers tell me, but I will agree to no binding obligation on my part until the details are verified as accurate.
What’s your plan for handling this property if you are going to be responsible for those payments? If you don’t have back up cash flow for the deal, then you’re going into the deal without much chance for success. Problems will occur and you’ll have a small window to service the problems if you don’t have back up cash flow.
What’s the ARV on that property? If it’s a good bit higher than the ask price, then you may be able to set up a flip deal with owner financing. Have a paper buyer come in and buy the seller financed paper for cash. You go home with a check. If you’re going to hold on to a property for someone, you need to make sure you have a good bit of cash flow to service forseen and unforseen problems. Otherwise, flip it or walk.
One thing that I have learned is that when you’re new, you have a tendency to want to jump on every deal that sounds like it’s good without looking at the total picture surrounding the circumstance. You’ll go into deals with a “I’m going to find some way to make it happen mentality” not being very realistic about what the total picture is. If the deal doesn’t automatically speak for itself, then it’s probably not a good deal. Keep this in mind with every deal that you do. You really don’t have to get excited about any one deal b/c there’s always another one. Always take time to look at your bottom line! Best!
Is that $25,000 or is that suppose to be $125,000???
At $25,000 something is very wrong with your numbers.
At $7432.87 per year to carry that would be $619.40 per month on a $25k property! That would mean he only had a 5 year loan at about 8% including taxes & insurance.
The gross income is $1,035.00 per month. On a $25k property???
Posted by NEWINVESTOR on March 24, 2002 at 15:07:44:
Thank you for your help. I will see how much he would be willing to sell all cash and/or what his terms are for seller financing perhaps I can find someone to flip it to.