Mentor VS average deal

Mentor VS average deal

Erie, PA · Member since 2017 · 25 posts · 2 votes

Hey BP - 

I'm really struggling with a potential deal I have going right now and need some opinions. I will try to make the story as short as possible. Quick background on me: I have 5 units total (I am house hacking a flat and have a triplex) so I am hardly what you would call a seasoned investor. Anyways, I found a flat on Craigslist (I'm in Erie, PA) which advertised seller financing which intrigued me. I reached out to the seller and set up an appointment to view the property. Afterwards, we sat down at a local McDonald's to talk turkey. We talked for about 2 hours and I quickly realized this guy would be a PERFECT mentor. He was very gracious with his time and answered all of my questions and he even revealed that he was previously a board member of the local apartment association (of Northwestern PA). I was so stoked to meet and talk with him. Towards the end, I told him that I wanted to pursue the property. He basically told me what he would do for me (finance it at 6.5%) and I would need the typical down payment. He walked thru the numbers with me to show me it cash flowed. It felt like he didn't even give me the opportunity to negotiate the terms (I'm def. okay with the interest rate but the property is overpriced for the neighborhood). 

I understand he is a professional and obviously very good at what he does. I also understand that it COULD cash flow, if it was a perfect world (needs a lot of work/repairs), so it might not necessarily be a BAD deal for me. BUT today I go to get the inspection, and there are a ton of issues AND I find a few holes in his story (for example, he said the tenants pay the water bill - talked to the tenant, not true). To be honest, if he doesn't work with me on the inspection items, there's no way I would do the deal normally. I will say this tho, he has ALREADY provided an immense amount of value to me (for example he gave me the addendums he uses in his lease and some of the strategies he uses to maximize his profits) and much more.  He has even said that he would be open to throwing me deals in the future. I've only known him for a week but he's already helped me take care of a situation that I have not dealt with before (tenant in prison). 

My question to BP is - This is a guy who could be HUGE for me as I am so early on in my investing career. Is it worth it to take on a less than average deal in order to maintain a good relationship with this guy? Should I risk losing his friendship/mentorship because I back out of an average deal? 

Hope this isn't a dumb question, just really need some help! 

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Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y

It's usually not much of a deal if it is advertised with SF.  Let another sucker bite on this one.

 My best ones have been reluctantly suggested by me, later becoming the sellers idea as they learned more about the benefits of being the bank.

Like 'buying' an advertised rent to own, be extremely vigilant here.

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  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Don’t take a bad deal to get a mentor. If he’s selling it overpriced at an above average interest rate I’m not sure how this is a good deal in anyway.
  • Member since 2018 · 1 post · 0 votes
    8y
    No way!! If you are willing to buy he is willing to sell... but why? He doesn’t want to do the repairs himself (we’ll fund them) so get the inspection report, deduct those items from the final sale price and get a contract for one year of consulting on the property. Then if you can afford the repairs, sure. However, don’t be surprised if he declines.
  • Rental Property Investor · New York City, NY · Member since 2017 · 493 posts · 386 votes
    8y

    Absolutely no, dont buy a bad or mediocre deal just to get a Mentor. 

    Lets say you go forward, how do you know he will continue to mentor you after the Purchase? Right now he has a little incentive in helping you and returning your calls or emails will he do the same after purchase?

    At this time you are the buyer and he is the seller, he wants to get the most out of the deal nothing wrong with that. Continue doing your due diligence question him why tenant said they are not paying Utilities and he mentioned they are?? Maybe its a miscommunication who knows..

    If the deal doesn't feel right back out, dont do a bad deal to potentially get a Mentor..

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y

    @Caleb Heimsoth I pursued it because it cash flowed about $236/month AND I could get my feet wet with a seller financed deal. Avoiding the typical bank loan is/was very appealing to me. I figured it would be a quick way to get another cash flowing unit with little money down. 

    @Raul R. Thank you for the response. You bring up good points. I had a very good feeling about him being a genuinely helpful person but I agree that is always a possibility that it's all an act. 

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Scott Coleman:

    No way!! If you are willing to buy he is willing to sell... but why? He doesn’t want to do the repairs himself (we’ll fund them) so get the inspection report, deduct those items from the final sale price and get a contract for one year of consulting on the property. Then if you can afford the repairs, sure. However, don’t be surprised if he declines.

     That's a really good idea. I appreciate the advice.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Chris Wakley if he drops the down payment, price or rate maybe it is.  But if you’re over paying, higher rate and same down payment how does that help anyone but the seller?

    I have read about and heard of people using seller financing to make more money because people thinks it’s some special deal and will overpay and have higher rates.  Not saying it’s not a deal but I’m saying look at it the same as you would anything else 

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Caleb Heimsoth:

    @Chris Wakley if he drops the down payment, price or rate maybe it is.  But if you’re over paying, higher rate and same down payment how does that help anyone but the seller?

    I have read about and heard of people using seller financing to make more money because people thinks it’s some special deal and will overpay and have higher rates.  Not saying it’s not a deal but I’m saying look at it the same as you would anything else 

     I thought the interest rate he proposed was quite fair (6.5%). I could be wrong as I am still new to the game. I know it's overpriced...but it goes back to the question.."Does it make you money?" and if it does, it might not be a bad deal for me. 

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Chris Wakley  assuming that you have good credit that rate is high.  Right now we are around 5.5 percent.  

    As so often that happens on here, people ask advice when they have typically already made up their mind.  It sounds like you have made up your mind.  Like I said before, not necessarily a good or bad deal, just saying I wouldn’t over pay and pay a higher rate.  I would probably do one or the other but not both. 

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Caleb Heimsoth:

    @Chris Wakley  assuming that you have good credit that rate is high.  Right now we are around 5.5 percent.  

    As so often that happens on here, people ask advice when they have typically already made up their mind.  It sounds like you have made up your mind.  Like I said before, not necessarily a good or bad deal, just saying I wouldn’t over pay and pay a higher rate.  I would probably do one or the other but not both. 

    I have excellent credit. My loans for my other properties are 3.25% and 5.00%, but those are through FHA and Conventional bank loans. So just to clarify, you are saying that on average right now seller financing loans are around 5.5%?

    I haven't made up my mind, I guess I am just rooting for one outcome over the other but so far everyone has said not to do the deal. 

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    No I’m saying conventional is around 5.5 percent, hence seller financing at 6.5 percent would be high.  Seller financing is whatever you make it

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Caleb Heimsoth:

    No I’m saying conventional is around 5.5 percent, hence seller financing at 6.5 percent would be high.  Seller financing is whatever you make it

     Right, but my whole attraction of this property was to avoid the conventional route. So I would be okay with the rate being a touch higher.

  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    8y

    Seller financing can be a curse and a blessing-usually a curse. Too often it is an invite to not do homework and inspections due to the temptation of fast, easy money-sometimes sellers will actually stop you from doing homework. Ask yourself ''why is the seller willing to settle for a trickle when he used to have the whole faucet" and don't buy the 'retiring' pitch either. Do your homework and ignore the seller financing unless the property ticks all the boxes without the seller financing. Get a lawyer to review any paperwork with the seller.

  • Colfax, LA · Member since 2017 · 8 posts · 4 votes
    8y

    I've never even made my first deal as an investor yet. But i do know I would negotiate. Any deal anyone  presents to you as an investor will have some wiggle room if it was presented to you. If the numbers don't look right show him your concerns. An investor (Buyer) tells the seller what he will pay not the seller telling the investor. Stand your ground and voice your Concerns. As far as the knowledge you've gained that's what Bigger Pockets and the other books I've read Refer to as feet on the ground type experience. Which I can't wait to learn But follow your gut feeling, ask questions, run your numbers. If it don't feel right or look right beware the Upsell.. And if you feel bad about walking away from the deal just send him potential Buyers and Maybe even make a few dollars in the deal. Part of me says I shouldn't have put in my two cents but that's what investing is about to me taking the chances, and making the Hard decisions. There will always be another deal. Please don't Bite my head off. I wish you the best Of Luck on your deal and Investing Journey.

  • Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
    8y
    How much over priced? Over priced for the condition or over priced and also in bad condition? Of course the seller was very gracious, he was making a sale. You can, in turn, be very gracious too. Tell him how much you appreciated his time and advice. Ask if you can do something for him, maybe. But do not buy an overpriced fixer to cement a friendship. I think the interest rate is okay for owner finance. But the seller should expect a fair price. His target buyer on craigslist was probably someone with bad credit who will overpay to get a loan and will fix the place up so the collateral rises to surpass the risk of the loan.
  • Rental Property Investor · Hong Kong, Hong Kong Island · Member since 2014 · 188 posts · 114 votes
    8y

    So if inspection reports plenty of problem, you don't want to bring it up with him because you could hurt his feelings by hinting to him that you know he lied? 

    Your seller should only be your seller. See after sale is closed.

  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    How do the numbers shake out?  Regardless of who he is or what the scenario is, what are the numbers?  Rent/monthly payments/repairs etc.

  • Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    Sounds like he is a good salesman, and is taking advantage knowing you want to get your feet wet with seller financing. That's my initial reaction.

    He lied about the tenants paying the water bill? That's crazy.

    If the numbers work, they work. Just do your research and follow your gut.

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Bjorn Ahlblad:

    Seller financing can be a curse and a blessing-usually a curse. Too often it is an invite to not do homework and inspections due to the temptation of fast, easy money-sometimes sellers will actually stop you from doing homework. Ask yourself ''why is the seller willing to settle for a trickle when he used to have the whole faucet" and don't buy the 'retiring' pitch either. Do your homework and ignore the seller financing unless the property ticks all the boxes without the seller financing. Get a lawyer to review any paperwork with the seller.

    Great advice Bjorn. Thank you for your response. His reason was to "concentrate on the Pittsburgh market." 

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Tobey Scadlock:

    I've never even made my first deal as an investor yet. But i do know I would negotiate. Any deal anyone  presents to you as an investor will have some wiggle room if it was presented to you. If the numbers don't look right show him your concerns. An investor (Buyer) tells the seller what he will pay not the seller telling the investor. Stand your ground and voice your Concerns. As far as the knowledge you've gained that's what Bigger Pockets and the other books I've read Refer to as feet on the ground type experience. Which I can't wait to learn But follow your gut feeling, ask questions, run your numbers. If it don't feel right or look right beware the Upsell.. And if you feel bad about walking away from the deal just send him potential Buyers and Maybe even make a few dollars in the deal. Part of me says I shouldn't have put in my two cents but that's what investing is about to me taking the chances, and making the Hard decisions. There will always be another deal. Please don't Bite my head off. I wish you the best Of Luck on your deal and Investing Journey.

     Hey Tobey, thanks for taking the time to read my post! I would never "bite your head off." I think you've brought up some great points and have reassured me to continue to ask questions and not be afraid. This is one of my biggest problems in my early career (standing my ground). 

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Marian Smith:

    How much over priced? Over priced for the condition or over priced and also in bad condition? Of course the seller was very gracious, he was making a sale. You can, in turn, be very gracious too. Tell him how much you appreciated his time and advice. Ask if you can do something for him, maybe. But do not buy an overpriced fixer to cement a friendship. I think the interest rate is okay for owner finance. But the seller should expect a fair price. His target buyer on craigslist was probably someone with bad credit who will overpay to get a loan and will fix the place up so the collateral rises to surpass the risk of the loan.

     That's a really good point about the target buyer Marian. I didn't really think about that. That's exactly how the Ad was phrased now that I look back at it. He brings up the point that it "still cash flows" but there's a lot of questions about the property still and I don't have the capital to go fixing everything right off the bat. 

  • Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
    8y

    @Chris Wakley,

    We had a similar situation, where we were looking to buy some seller financed houses from a guy who was selling off, literately 100 properties, and he was very nice, knowledgeable and we thought he could be a great  resource too... turns out, his idea of "turnkey" and ours were very different.. and his houses were heavily overpriced!     

    Business is business. People are only looking out for themselves, so if he's willing to owner finance, it's because he knows he can get more money and do less work-- vs. the MLS where the market will push the price down to account for the repairs needed. Of course he's pushing it as a great buy.. he wants it off his hands, no one sells a house b/c it was easy money and wasn't stress... He might be nice, but he isn't doing you any favors... so I wouldn't do the deal. He's also already lied to you about who pays the water, so IMO I definitely wouldn't trust him.

  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    8y

    It's usually not much of a deal if it is advertised with SF.  Let another sucker bite on this one.

     My best ones have been reluctantly suggested by me, later becoming the sellers idea as they learned more about the benefits of being the bank.

    Like 'buying' an advertised rent to own, be extremely vigilant here.

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Sebastien Hitier:

    So if inspection reports plenty of problem, you don't want to bring it up with him because you could hurt his feelings by hinting to him that you know he lied? 

    Your seller should only be your seller. See after sale is closed.

    I hear you. I just hear all the time the importance of "finding a mentor" and that being one of the biggest steps to one's success. 

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Ian Walsh:

    How do the numbers shake out?  Regardless of who he is or what the scenario is, what are the numbers?  Rent/monthly payments/repairs etc.

     Hey Ian, thanks for the response. Monthly rent is $980. Total expenses come to $860 (and that is WITH tenants paying the water bill). 15 year note. I just got the inspection report back today so I will need to figure out all repairs needed. One of my biggest questions I have not learned yet is; how do I factor in all IMMEDIATE repairs into cash flow analysis? Hope I am wording that. Have to do a little more reading on that .

  • Erie, PA · Member since 2017 · 25 posts · 2 votes
    8y
    Originally posted by @Brian Ellis:

    Sounds like he is a good salesman, and is taking advantage knowing you want to get your feet wet with seller financing. That's my initial reaction.

    He lied about the tenants paying the water bill? That's crazy.

    If the numbers work, they work. Just do your research and follow your gut.

     I think what you said is the simplest way to put it..."follow your gut." After the inspection I just have a bad feeling about it. Maybe it is me being new but I'm just not comfortable with the deal as it stands. Thanks for the response! 

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