So, here's the deal. I have a friend who bought a property during the bottom of the housing crash and owns it free and clear. He has recently expressed his frustrations with being a landlord and real estate investor. So, this got me thinking and I approached him with a possible solution to his "problem" so he won't have to commit fraud and "burn it down".
I told him that I need more info on the property but have gathered that the home is a single family 4 bed 1 bath 1/2 mile from the beach in a good neighborhood and is in decent shape. The location is Gulfport MS and most recently collect a rent of $800 a month, utilities excluded. His purchase price was $60,000 with $40,000 down on a 5 yr term mortgage. I told him I need to know how much he has spent total on this property so I could give him a fair price that would work for the both of us. He is estimating the retail value to be about $110,000 but has not had it appraised.
The other day I gave him 2 tentative offers and he seemed intrigued. I told him (assuming his valuation estimates are correct) I would do a 5yr. lease/option with a price of $85k and fee covering the inspection and appraisal costs and monthly payment covering taxes and insurance. To sweeten the deal I said I would pay 25% of current rent when it was occupied and take over all responsibility for the property. I also, said I would add a carport and an additional bathroom (if plumbing and the lack of major reno allowed). The second offer was a purchase price of $85k with seller financing of 5%. The term being no less than 15 yrs. As incentive to do a longer term loan I said I would toss in 5-20% of profits when sold depending on length of term for the loan.
The catch is it may be my first deal and it is waaaay out of town. Like 1,400 miles out of town. This aside I think the deal is fair and both parties would benefit. If I can find a decent property manager in the area and do the renos mentioned I think I am sure to make money on the property with not too much headache. Maybe some of course, but this is work/business after all.
What I need help with is process. Say we agree on one of these deals. Who do I contact to get things rolling? I need a contract. Shall I find an attorney that deals with real estate to draft this? Who else will need to be hired for this process? A title company? Excuse my ignorance, but this would be my first deal and it is as you can tell is "creative real estate investing" so I am essentially on my own here. I want to make this as smooth and painless for the seller as possible. He is a good friend and I am a firm believer of good business. I will treat all future sellers/investors with the same respect and put all the leg work on myself.
Second thing I ask of you is your thoughts/opinions and any suggestions.
Thank you for your time and input!
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This is not a good deal no matter how you cut it. Long distance investing is a bad idea on a property that is highly unlikely to produce any positive cash flow. Even if it did the headaches would not be worth the hassle, that is why he wants out.
Ok. I understand the long distance problem. But the numbers do check out and should have positive caahflow. Especially with the renos mentioned I expect to get a rent of $1000 and min $800 without.
So please explain why you think this is a bad deal.
Additionally, yes the distance is why he wants out. But he is not commited to investing. This is just what his parents suggest he do with his bonus money from his military time.
I am open to critiques and want to understand other view points
I'll have to agree with @Thomas S.
Personally, I wouldn't pay $85,000 for a property that only generates $1,000 a month in rent unless there was potential for passive appreciation on the property. There's nothing wrong with buying far away properties but there are better deals out there where the numbers are better.
Here are some rough calculations. BadDeal.jpg
Obviously, I'm being conservative with the expenses here. Either way, you will not be cashflowing very much at all unless you think you can get 1300 in rent.
If anyone wants this simple calculator, I can send it.
Thanks for the input all. First possible deal to fall in my lap. will be scouring for more soon. That cal calculator would be very helpful @Dillon Leider
I just read your post today. I recently moved to Gulfport. I don't know if you still have interest in your friends property or not but if you need eyes on the ground I'm happy to help a fellow newbie.
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