I have an interesting situation that I am looking for some advice on.
I own sober living homes for men looking to recovery from substance abuse addictions. We are ready to add more houses.
Problem: We may no longer be able to get traditional financing since we own so many homes already. We could rent, but rental prices are so high it would cut into profits and it would be difficult to find an owner willing to lease to us since we would need to make alterations to the home to accommodate up to 12 men.
So I have been thinking about several solutions. The one that I would like some advice on is this:
I would seek out an investor looking for a hassle free real estate investment. The real estate investor would own the house but would have no landlord duties at all. I would be responsible for all expenses including remodel, repairs, maintenance and would even pay the mortgage, taxes and insurance directly.
Basically, the only responsibility of the owner would be to open his mortgage statement once a month and see that it is paid.
In addition, I would pay the owner a 5% annual return on his original cash investments. Up to 20% of the price of the home So:
House price: 300,000
Investor down: 20% or 60,000
Annual return: 5% of $60,000 which would be $3000
the cash return is not amazing, but considering that the owner does not have to pay for repairs, maintenance, management, vacancies or upgrades....the profit would be comparable to any single home rental. The cash return is NOT dependent on the income of the business.
1. 5% annual return
2. Home appreciate (roughly 2-5%) on $300k is $6000 to $15,000
3. We pay down the mortgage (around $3,600-$5,000 annually)
with the various avenues of profit, the owner would realize a around a 20% return on his $60,000 annually. The safety of the investment would be backed by the value of the house.
We would likely require a 5 year commitment. The owner can opt to sell or continue to own after 5 years.
The owner and my business would have to agree on the house. It would have to be located in an location within 1 mile of treatment centers and would have to accommodate up to 12 men - shared bedrooms.
Of course, we would agreed to any remodels, and would agree to keeping the house clean, maintenance up to date, etc to protect the investment.
I would love some input on this as I have never done a deal like this. But I am trying to make a deal mutually beneficial.
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@Ryan York Sober living makes for a good investment but I cannot stand the frozen North.
@Ryan York One problem you will face when you starting offering investment opportunities to the public is dealing with securities laws. Much more complicated than getting a commercial loan and expanding your portfolio that way.
@Tom Gimer Thank Tom. I would like to do commercial loans but the term are much more difficult at this point. Shorter amortization and higher interest rates would really cut into my monthly cash flow...am i understanding that correctly?
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