Suggestions for possible deal... - Posted by Scott (ATL)

Real Estate Investing
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Posted by Reif on March 23, 1999 at 24:36:34:

OK. I’m still a new guy, but . . .

You want them to get a second for equity - I guess they can get 100% LTV on seconds?

Let’s say 147K total in loans - to make the math easy, let’s say 7.5% average for the whole ball of wax.

That’s P+I of 1027, and you haven’t paid condo fees and taxes (insurance is mostly covered by condo fees) yet.

If you can get $1200 - that might be break even.

How much premium will you be able to get on the backside?

If you do this deal I would ensure that you don’t pay until a tenant is in the place so you don’t go negative right away.

I understand you want to give your friends full price, but if you do, there’s only a really thin deal here.

Remember, condos are tougher than SFR’s to sell - especially if they don’t have W/D hookups - at least in SoCal.

Reif

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Suggestions for possible deal… - Posted by Scott (ATL)

Posted by Scott (ATL) on March 22, 1999 at 14:43:38:

I think my last post was a little long winded so I didn?t receive any replies. Anyway, I have a few more specific questions that should elicit a reply or two.

I?m interested in buying a friends condo (1953 2 bd/2b upgraded kitchen and baths, hardwood floors) for investment purposes.

I?m still getting some background info but essentially they have only owned it for a year so they want to avoid the capital gains tax. Currently comparable condos are available for 147K. I believe that they have increased about 10% which would put them at a purchase price of about 135K-137K a year ago. I?m not sure how much they put down but I?m guessing 13K for sake of argument (I?m working on these details?He?s a good friend of 17 years but he is hesitant to give this info?Doesn?t fully understand I think?Plus he?s a conservative accountant).

The way I look at it is if they list it and go the conventional route they?ll drop 10% in commissions and closing costs only allowing them to recoup their down payment. Then, of course, there is the tax hit! I?m not sure how much that would cost them.

Anyway, I?m thinking about asking them to take a second for their equity (Gets them the cash they need for their new house) and then offering them a lease option. This way they can hold onto the house for another year avoiding the tax hit and be guaranteed a sale with no sales commissions. I believe I?ll be able to get 1K-1200 a month for rent. (Preliminary SWAG numbers show this as break even)

Is my thinking going in the right direction? I?m sure we can negotiate a good option contract.

Thoughts, suggestions?

Thanks,
Scott

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Re: Suggestions for possible deal… - Posted by Scott (ATL)

Posted by Scott (ATL) on March 23, 1999 at 15:24:22:

Ooooopppsss?. Looks like I gave the wrong impression on how much I would buy the place for. I don?t intend to give him fair market value. I haven?t really determined what a ?fair? price is yet plus the two condos listed for 147K now haven?t sold and even if they do I don?t think they?ll get what they?re asking. The idea is to let him keep ownership for another year (avoid the tax hit) but get him enough cash to move onto a new place. If he sold today (Let?s say he gets 140K) and took the tax hit and paid 10% in commission and fees he?d probably lose money! You?re right that I don?t want it to be my problem but I plan on renting the place for a while (buy and hold). My thinking is that if I step in I can probably eliminate the 10% commission/fees and keep him from getting stung by the IRS.

Does this sound like a deal is possible? Maybe giving him cash (As Bud stated) would be the best route?

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Re: Suggestions for possible deal… - Posted by Bud Branstetter

Posted by Bud Branstetter on March 23, 1999 at 10:16:11:

Scott, Let me get this straight. You want to pay FMV for a condo? Even with a L/O you don’t want to lose money. Less equity is okay but there must be some. Why does the down payment have to come from the equity in this property. To do things because of short vs long term capital gains is not investing.

What I might do-loan him the money as a second on his new place. Buy the condo subject to the existing mortgage. It seems as if you want to solve his problem by making it your problem.