Hi BP, here's the deal, I got a response to one of my yellow letters from an elderly lady who is recently widowed. She has a home that is currently rented out for $850 a month. Her mortgage is $962 and she owes a little over 94k. She says she cannot continue to keep up the property any longer due to her declining health. Remax is the managment company that she is using now. She has told me that she wants to be done the house and that she is okay with me taking over the payments. I made it clear to her that I would take over the payments and not assume the mortgage. She has put a new roof and siding on the house last yea. The houses is in great condition. She lives in Florida and the house is in Georgia and has said we can take care of the paperwork by mail because she cannot travel. She is willing to deed me the house to take everything over. The tenant has been in the house for 5yrs pays the rent on time and does not want to move. She is really desperate for me to help her because she wants to have the burden of the house off of her because she says she cannot afford to pay the difference from the rent she gets and what she gives remax to make the mortgage. I really want to help and take the house off her hands. What do you think I should do??
What is the home worth?
It does go back to the market value of the house. Is their sufficient equity today (25% plus) and decent assurance of future appreciation (5% per year) to make it worth negative cash flow?
The other obvious factor to consider is raising the rent to make up for the negative cash flow, but going up $150 a month may not possible in that market or with the current tenant.
But if there's no equity, no appreciation, and negative cash flow, I'd be wanting to shed myself of that property, too.
I would take the the house and evaluate the renter's market and see if there any room to valudate increasing the rent . I understand it's a $112 dollar different's at first but if you hold and let it appreciate , and if the market allow its . It's probably not the best advice but it would be my starting point .
Hope that helps
To your success
@Patricia Mclean sounds like there could be some potential here. First and foremost, be sure the person you are speaking does in-fact own the home. Nothing worse than racking your brain and resources to put a deal together only to find out the person you are working with does not have equitable title. Once ownership interest is confirmed, assess the market. If you don't have the capability, contact a local realtor to see if they will prepare a CMA for you. While the agent prepares the CMA, research or find an expert to assess the home from an investment standpoint. You said the current resident has been living in the home for 5 years. Has rent increased at any rate along the way? Review the lease to see what the terms are. Who pays utilities? Maybe you can shave a couple dollars by having tenant pay utilities and increasing rent? It may not happen with this particular tenant but if they do not agree to terms, properly notify them per lease specifications that you will not be renewing. At that point you can implement the changes needed to make the home perform. Have you spoken with the current resident to see if they might be interested in a Land Contract or Lease to Own? Perhaps they will be willing to put some money down, pay a little bit more per month and eventually own the home? If they've been there for 5 years they may wish to purchase eventually.
@Patricia Mclean - If you haven't figured out the value of the home send me a PM of the address and I can figure it out pretty quickly. This might be an smart deal if you already have a little equity. It would also be a great move if you can get the lease with an option to purchase in the next 12-24 months. Only with a non-refundable deposit!! What is your goal? Wholesale for fee to another "Buy and Hold" investor? Or fix and flip after tenant moves out.
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