deal analysis help

2 Replies


I have done many deals but this one I am not exactly sure how to get it to work out for everyone.

I know someone who bought a property for 115k originally . The market has turned and they can't get that much now.  The mortgage is assumable it ends in 2022 and has a rate of 6.7% home equity  with a PI of 600 a month.  The current outstanding balance is 38,500

The guy wants to cash out what are your suggestions?

the total rents are 1,4000 per month (dplx) 

taxes are 3,700 a year. 

water 70 a month 

maint 75 per month

insurance 75 a month 

the neighborhood is good and the tenant base is very stable ( B level tenants)

what suggestions would you have or additional information needed?

@Michael Sherwood  

This is a tough one.  Why does he want to cash out, is the first question.  Looking quickly at your numbers it appears as though he's cash flowing around 250-275/month?

What is he asking for the property?  How long has he had in how long has he been cash flowing around $250+ a month?

I ask these questions because I see too many investors look at the total cost as purchase price and not the actual cost which is the accumulated monthly payments plus cash originally in.  With this in mind, he hasn't actually paid 115k for the property.  He's paid:

1 - What ever cash he originally put in plus...
2 - What ever losses he's incurred over the time of ownership (this would be "zero" if he's cash flowed the entire time, plus...
3 - What ever he still this case $38,500.

Since everything else is profit (cash flows), all he really has to do is sell it for more than the total of listed items 1 - 3 above, and he makes a flows plus difference of what sells it for and what he paid (items 1 - 3) for it.

This is one of the unappreciated advantages of owning rentals instead of flipping.  All you need to do to make a profit when/if you sell is to sell it for more than you actually paid for it.  Remember, the tenants are the ones that are actually paying for it (as long as you're cash flowing), not the investor.

Joe Villeneuve

@Joe Villeneuve  

the cash flow of 250-275 is about accurate. 

He moved out of state, this used to be where he lived but then we started managing it for him when he left he has had this property for less than 10 years. I think his family helped him put a big downpayment on it so he just wants the equity out of it. 

I think at the end of the day he just wants it gone and I am trying to find a way to help him out.

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