To wait 2 years for an awesome deal or do a deal before then?

7 Replies

Back story: Since joining. my plan is to rent my current single family residence out and hopefully make 200$ in cash-flow a month. To do this I would obviously need to purchase another house at a below retail deal, live in it, fix it up, and then do the same to the next residence(rent it). My mind has been focused on finding the right deal within about 30 min of driving distance from my house. I've made a relationship with a realtor and a lender as well in the meantime, already pre approved..yadda yadda yadda.

Here's my dilemma. My mother in law has a property that she is "tired of taking care of", She currently rents the home out and is just fed up with being a landlord. This home is about 2800sq ft, has a two car attached garage and is on a beautiful 6 acres of land. The house is easily worth on the lower end, upper 300's and on the upper end, around 420k. She currently rents the home for 1600(very low IMO) a month with the tenant pretty much taking care of everything besides major appliances(tenant puts up 50% if something breaks).

She is going to offer us the house at close to 50% value with 80k financing from the bank(she still owes 80k on it) and the rest, seller financing(her financing us) at a 1% interest rate.

Her tenants just signed a lease for an additional 2 years.

My question(s): Would you guys advise me to wait the two years to invest in this home?(remember, I am going to be living in this home)

Should I invest in another property in the meantime and get this one as it comes up in 2 years?

I'm afraid that I wont be able to make the deal happen in two years if my money is tied up in another deal somehow or someway.

My wife and I could use the two years to save up for a massive reserve fund(for both properties) for ease of mind in those two years.

I also don't want to wait 2 long years and feel like I'm putting my "goals" on the back burner...

Thoughts?

Thanks

James

Since your mother in law just signed a two year lease with the current tenants you would have to honor that lease if you bought the house unless you were able to buy the tenants out or convince them to leave. If, as you think, they are paying significantly under market rent that may prove to be very expensive and/or difficult. 

Based on your information the property is currently worth $380k - $420k.  Let's split the difference and call it $400k.  (I like simple math.)  Granny is going to sell the property to you for about $200k, with an $80k sub2 loan and the rest with her financing at 1%.  Have I got that about right?

Simple math, remember?

$400k - $200k = $200k instant equity!

I think you would be crazy to not jump at this opportunity.  For that much equity, I would even consider offering the tenant cash for their lease.  Would they take $5k to simply find another place to rent?  Just a thought.

Originally posted by @Jeff Rabinowitz :

Since your mother in law just signed a two year lease with the current tenants you would have to honor that lease if you bought the house unless you were able to buy the tenants out or convince them to leave. If, as you think, they are paying significantly under market rent that may prove to be very expensive and/or difficult. 

 Thanks for the input Jeff. I agree that it would be very hard to convince them to leave. I do think the rent is significantly below market value. I'd have to do some more research but I think this house could rent for 2k

Originally posted by @Hattie Dizmond :

Based on your information the property is currently worth $380k - $420k.  Let's split the difference and call it $400k.  (I like simple math.)  Granny is going to sell the property to you for about $200k, with an $80k sub2 loan and the rest with her financing at 1%.  Have I got that about right?

Simple math, remember?

$400k - $200k = $200k instant equity!

I think you would be crazy to not jump at this opportunity.  For that much equity, I would even consider offering the tenant cash for their lease.  Would they take $5k to simply find another place to rent?  Just a thought.

Granny (lol)

Thank you as well Hattie (awesome name btw). Exactly, around 200k for the property. 80k sub-2-loan, 1% financing from her (seller). I too think that we would be crazy not to jump. Looks like this is going to be my next step. 

Thank you so much for the input

James

Start as you are thinking save like mad as much as you can for when you can move in, Granny just gave you $200K. That can be your seed money to set you up in real estate for the rest of your life if you handle it right. 

I am certainly not a tax expert, but you might want to check with one before doing a 1% seller financed loan with a family member.  The IRS could consider that a gift and charge you a gift tax.  Currently as of July 2015, any intra-family loan with a term of over 9 years must have a minimum interest rate of 2.74% in order to avoid a gift tax penalty.  I'm not sure if it being a seller financed deal changes the IRS rules for intra-family loans or not. 

https://www.nationalfamilymortgage.com/afr-rates/

@Randy Landman

Good point Randy. I was actually curious about this because I had heard of this before but considered it to be just rumor. I'll make sure to dot my I's and cross my T's with a tax expert. I spoke with my lender just yesterday, he doesn't seem to be worried about the tax implications because I had actually brought this very same point up to him(he's investor savy as well). I will make an appointment to talk with a tax representative to dispel the rumor, one way or the other.

Uncle Sam's a B****

Thank you for the input.

James

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