Help assessing an opportunity and how to move forward

4 Replies

In in New Orleans and did a flip property, a duplex in an area that used to be pretty bad, but has gotten better. Apparently, the fact that we re-did the "problem" house on the block, made a tremendous change in the area and an impression on the owner of the duplex next neighbor. The owner of the duplex now has a very emotionally charged relationship with their property. They don't want it anymore and seem desperate to dump it... to the point that if I don't take the property (yes as in, they're ready to just give it to me - and have even offered to pay me to take it), they're just going to abandon it and let it go back to the bank.

Yes, I realize that this is a wonderful problem to have! People wanting to just give you their real estate. It's like a real estate investor come true but the deal is a bit thin... as one would expect under the circumstances.

Here are the numbers:

Value as is: $130,000 or so - ARV - $151,000

Balance of Mortgage: 127,000

Original appraised Value: 158,000 in 2008

Total monthly payments including PITI and MI- $1319.77 (MI Goes away in 2 more years)

Potential Rents: 1500- 1600 monthly - will be vacant at the end of May.

Needs some minor repairs - $5000 or less, but rentable as is. Could also use removal of vinyl siding and painting but that's always a gamble since we never know what we'll find under the vinyl.

So as you can see, it's not a great deal, but it's a free duplex with the financing (albeit not great) in place. I'm in the process of selling mine (under contract) next door for $151K.

Questions:

-Currently held in an LLC, could I just have them transfer the LLC to me and take it subject to? This may be a question for a title attorney.

-They're thinking of doing a Bond for Deed (which is a land contract in Louisiana) that involves what I believe is unnecessary closing costs to the tune of almost $2000. This gives them the most protection, but like I said, they're over it and ready to destroy their credit over the double anyway so what's the point?

-Simple "subject to" purchase into a new LLC?

What would you do? I'd love some perspective on this.

@Kelli Bristol I would get a LA attorney's opinion about the title and transfer of the LLC questions you have.

As far as the numbers, if the ARV is 150k, then you need the balance to be below 120k to be below 80%. If the MI is $100 or more a month, then that's where you have the potential to make the monthly cash flow better on this property. If you can pay the 7k now and drop the MI, you will "make" 1200/yr on 7k by eliminating the MI! That will improve your bottom line and your profit margins.

Vinyl siding isn't my favorite either, but the "damage" is done and I wouldn't go messing with it on a property with such thin margins.

I also wouldn't call it free. You found it a lot easier than usual, but WHEN you have a vacancy or a repair that has to be made, it will cost you money.

I wouldn't consider the financing to be a permanent solution either. You can bet that not long after rates rise significantly, banks will start calling these subject to deals to either force a sale or refinancing to reset them to higher rates. No crystal ball, just my opinion.

Not sure if you've moved on this yet, but I'm with you. Take the deal, rent it out and cashflow it for now. If the market continues to improve around here then you'll do well either renovating it in the future to flip or renting it out.

For the transfer if this is the only asset his LLC has you can just have him transfer ownership of the LLC to you which would avoid a transfer being recorded in the clerk of courts office so the bank won't see a transfer of onwership and the assessor won't see it either (just meaning they won't reassess the property and bring your tax base up).

Thanks for your input! If I were newer to investing and didn't already have a lot on my plate doing renovations, I would have taken it, but I've taken it as a listing for now and will try to eek a commission out of the deal instead. If we can't get something to work, I've told them I'll take it via the LLC before they out and out give up on it but didn't want their expectations to be too high. As it stands they have very good credit and I don't think they understand the implications and costs of just "letting it go".

Thanks!

Nicely done, at least turning it into a listing. and yes, good advice from you to the sellers on saving their credit.

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